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Grand Committee

Monday, 12 December 2011.

3.30 pm

Arrangement of Business


The Deputy Chairman of Committees (Lord Skelmersdale): My Lords, we have two affirmative instruments before the Grand Committee this afternoon, but it has been agreed by the usual channels that the Grand Committee will adjourn to allow Front-Benchers speaking in the debate on the Intelligence and Security Committee report to be in the Chamber during today's Statement-apparently, any overlap with the Treasury statutory instruments does not matter. The Hansard staff and the Whips are aware.

Before the first Motion is considered, I remind noble Lords that, in the case of the two statutory instruments, the Motion before the Committee will be that the Committee do consider the statutory instrument in question. The Motions to approve the instruments will be moved in the Chamber in the usual way. In addition to any other adjournment, if there is a Division in the House, the Committee will adjourn for 10 minutes.

Financial Restrictions (Iran) Order 2011

Financial Restrictions (Iran) Order 2011
34th Report from the Joint Committee on Statutory Instruments

Considered in Grand Committee

3.31 pm

Moved By Lord Sassoon

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, this financial restrictions measure against the Iranian banking sector was introduced on 21 November by my right honourable friend the Chancellor of the Exchequer. The Treasury laid the Financial Restrictions (Iran) Order 2011 before Parliament under its powers in Schedule 7 to the Counter-Terrorism Act 2008. The order contains restrictions requiring UK credit and financial institutions to cease business relationships and transactions with all banks incorporated in Iran, including their branches and subsidiaries wherever they are located, and with the Central Bank of Iran.

I would like to turn first to the rationale for the order. The restriction contained in the order responds to the risk to the national interests of the UK caused by activity in Iran that facilitates the development or production of nuclear weapons. The Government have had serious concerns about Iran's nuclear activities for some time, and these concerns are shared by the international community. The 18 November board of governors report of the International Atomic Energy Agency, which is the UN body charged with monitoring Iran's activities, provided further evidence that Iran's

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nuclear programme was being used for non-civilian applications. In particular, the report sets out the IAEA's concerns about,

The case for UK action is underlined by the urgent call from the Financial Action Task Force-the FATF-which noted its particular and exceptional concern about Iran's failure to address the risk of terrorist financing and the serious threat that this poses to the integrity of the international financial system. Other countries share our concerns in respect of Iran. These include the US and Canada, both of which implemented further restrictive measures against Iran on 21 November. The EU also has financial sanctions in place, including further asset-freezing measures against 180 Iranian individuals and entities agreed at the beginning of this month, and is considering future measures to implement.

The Government introduced the Financial Restrictions (Iran) Order 2011 to respond rapidly to further evidence of the risks posed by Iran's nuclear development programme. Iranian banks play an important role in providing financial services to individuals and entities within Iran's nuclear and ballistic missile programmes, and many Iranian banks have been sanctioned by the UN and EU for their role in Iran's proliferation-sensitive activities. Given the UK's important position as a global financial centre, the UK restrictions will have a major impact on the options available to Iranian banks. This will make it more difficult for Iranian banks to use the international financial system in support of proliferation-sensitive activities. The action also protects the UK financial sector from the risk of unwittingly being used to facilitate activities which support Iran's nuclear and ballistic missile programmes.

I will now explain the specifics of the order. The order was made under Schedule 7 to the Counter-Terrorism Act 2008, which provides the Treasury with powers to impose a range of financial restrictions in response to certain risks to the UK's national interests. The powers enable the Treasury to respond to proliferation risks, as we have in this case, and to money-laundering and terrorist financing risks, or where the FATF calls for countermeasures.

Shortly after the restrictions came into effect on 21 November, the Treasury published a series of documents on its public website. These alerted the financial sector to the restrictions and provided guidance on their implementation. These documents were also e-mailed to more than 13,000 subscribers to our e-mail alert system.

In addition, the Treasury worked with the Financial Services Authority, HM Revenue and Customs, and the Export Control Organisation to publicise the restrictions and provide information to firms on the requirements. The documents published by the Treasury on 21 November included six general licences exempting specific activities from the restrictions. These general licences enable credit and financial institutions with existing business relationships or transactions with the entities concerned to manage the cessation of business in an orderly way. They permit them to provide financial services for humanitarian purposes and personal remittances between individuals here and in Iran.

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Further licences, whether general or individual, may be granted by the Treasury to manage the impact of the requirements on third parties. Companies affected by the restrictions can apply for a licence of exemption and we are particularly minded to grant licences where UK companies are owed money under existing contracts. This approach is similar to that used in other sanctions.

Firms already have in place procedures and systems to meet obligations relating to financial sanctions and anti-money laundering. They help to minimise the burden of complying with these restrictions. It is expected that compliance costs for the sector as a whole will be moderate, although any institution with significant business relationships with an Iranian bank will face larger costs. Supervision of the financial sector's compliance with these restrictions will form part of the existing supervisory regime of the Financial Services Authority, HM Revenue and Customs, the Office of Fair Trading and the Department of Enterprise, Trade and Investment Northern Ireland.

Let me conclude by emphasising that this order was issued by the Government to respond to the severe risk that Iran's nuclear activities posed to the UK's national interests. This is a strong measure, but it is necessary. Iran's proliferation-sensitive activities are a serious and ongoing concern for the UK and the international community as a whole. It is vital that we continue to take steps to increase pressure on the Iranian regime and to encourage Iran back to the negotiating table to find a diplomatic solution. For these reasons, I commend the order to the Committee.

Lord Newby: My Lords, I thank the Minister for the clear introduction that he has given to this measure which seems, broadly speaking, to be proportionate. I have just one question. To what extent will Iranian banks be able to continue doing business here direct with companies as opposed to with UK financial sector bodies? I think that the Minister said that they will be able do that. If so, have the Government given any consideration to freezing the operations of Iranian banks so that they simply cannot do any business out of the UK?

Lord Tunnicliffe: My Lords, the Minister will be delighted to know that we support this order. I would like to thank him for his introduction and to say that he has certainly satisfied any questions that I might have had on the technical side of the banking-not that I am particularly qualified to be able to ask him any questions on that. This is, essentially, a foreign policy issue and I will say a word or two on what has led to this very strong action, which we support.

We are contemplating a nuclear-capable Iran, the consequence of which would be dire. It would destabilise the region; it would cause other states to react; it would probably put the non-proliferation treaty under pressure-perhaps terminal pressure-and, of course, it would lead to an increased possibility of the use of nuclear weapons. The military solution that has been talked about in some international circles is no less

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dire. The idea of a simple, surgical strike is almost certainly unreal and we may well see ourselves in military conflicts whose breadth and depth are quite appalling to think about, stretching from Hezbollah as one actor through to Saudi Arabia, the Emirates, Israel, US facilities in the area and, as ever, the Strait of Hormuz.

Fortunately, actions taken to date that are short of military actions are being successful. Most commentators seem to view them as successfully holding Iran some two years away from capability. This order is part of that widespread non-military action that international states are taking to keep Iran away from that capability. Nevertheless, the seriousness of this order and the reaction to it in Iran is illustrated by the probability that the attack on the British embassy in Tehran was stimulated by it. I pay tribute to the bravery of our staff in Tehran during the violence that they were subjected to in that difficult situation.

Having looked at the FCO's statement, it seems to me that the order has a twin-track set of reasons. The first is the International Atomic Energy Agency's latest report on Iran, highlighting fresh concerns. In situations such as this, I always like to try and turn to the source information. The document that it refers to has 25 pages and is quite chilling reading, if one knows anything about nuclear weapons. The general view is that nuclear weapons are about getting enough nuclear material but they are much more difficult than that. They are about clever explosives, hydrodynamics and all that sort of thing. Just flicking through the report, the chilling thing is to see the amount of energy that Iran is apparently putting into that technical side of making a bomb work.

Sadly, one of the problems with the IAEA is that while it is a very capable body, at the end of the day it does not have the ability to instruct people to do things. If you actually read its resolution, it uses words such as press, stress, urge, express and commend. The only thing that it decides to do is to remain seized of the matter, so I would be grateful if the Minister could express to me just how widely this concern, which I think was expressed on 18 November this year, has been followed up by other countries. Can he flesh out any more detail of the actions on it that other countries have taken?

3.45 pm

The Financial Action Task Force is the secondary reason for pressing ahead given in the FCO's press release. Although it has 37 members, it does not have mechanisms within it to compel members to do anything. It is an organisation that is once again about urging people to do things. The declaration says that the task force,

and so on. It is not a hard-nosed, "do something" type of organisation, so I am once again curious enough to know how many states, having read the declaration from 28 October, have come in behind the UK and other countries and introduced similar powerful orders to produce the required effect.

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It is important, first, that the measure has an international effect and, secondly, that the risk of avoidance is addressed. This is set out in the impact assessment on page 8, which says:

"There is a risk that the measure will be weakened by financial institutions in other countries providing financial services to Iranian banks, including in support of Iran's proliferation-sensitive activities. The Government will raise this risk with international partners and push for further international action".

Can the Minister say a few words about how significant the avoidance might be and what progress we are making in further discussions with international partners to ensure that avoidance is either avoided-forgive the pun-or is at least mitigated?

At first sight, the penalty provisions do not seem very significant. It is two years' imprisonment, which would be quite a frightening thing for an individual, or a fine. I have no idea of the size of the fine, and I would be grateful if the Minister could give us a feel for the mechanisms that the Treasury or the FSA have to make these things really bite. When one looks at events that have happened in the United States, with Credit Suisse, Lloyds and Barclays, which have ended up with penalties-one more than £500 million, one £350 million and one nearly £300 million-it is clear that they are of quite a different order of magnitude from the penalties referred to in the impact assessment.

Having said all those things, I think that what the Government are trying to do here is to mitigate, to prevent Iran achieving nuclear weapons and to stop them using the banking system to finance terrorism, and these are aims that we totally support. We will, of course, support the order.

Lord Sassoon: I am grateful to my noble friend Lord Newby and the noble Lord, Lord Tunnicliffe, for making this a short, constructive and to-the-point debate. I shall go straight into the questions that have been asked. First, on the question from my noble friend about the extent to which Iranian banks can still continue in this country to do direct business with companies or individuals, the answer is that the four Iranian banks in the UK are already subject to asset freezes. They cannot do any business at all in this country unless they get licensed by the Treasury, and of course licences are going to be issued only in very particular and limited circumstances. The prohibitions in respect of the UK are pretty watertight, and no UK company can, in effect, use a UK bank to deal directly or indirectly with an Iranian bank.

The noble Lord, Lord Tunnicliffe, asked what other countries are doing. As I said on 21 November when we brought forward the order, the US and Canada took further, similar measures. France, too, announced that it was going to take measures in the near future, particularly in relation to oil trading. The 27 member states of the EU designated 180 individuals and entities for asset-freezing at the beginning of this month, so there is already significant co-ordinated action. The Foreign and Commonwealth Office is working with our EU partners to consider a further round of strong sanctions measures, including targeting in the new year the Iranian oil and gas sector and the central bank, so there is ongoing work with many of our

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partners. Incidentally, 32 out of 35 countries on the IAEA board of governors supported the resolution of the IAEA in this respect.

The FATF is an international best-practice body. As I know because I chaired it for a year, members take its calls for action very seriously. Often, in my experience, those who are outside the EU and North America will take a bit longer to consider their response. The FATF has three plenary meetings a year and there is always follow-up to action taken since the previous meeting, so it does not let these things wither on the vine. Its next meeting will be approximately four months after the October meeting, at which it will take stock of progress.

The noble Lord also asked a question about the risk of leakage through other countries and what we are doing to avoid the risks which the impact assessment identifies. As I have already said, we are working with many Governments to make sure that they are aware of our concerns. I was in the Gulf during the week when this order came into effect. I had discussions with central bank governors and others there about what they were doing in response to the IAEA report. We talked to many countries. It is quite clear that the tightening sanctions have a significant effect on Iran's economy and its ability to move money around, but I fully accept that we have to remain extremely vigilant and work with our partners to ensure that we make it as difficult as possible for it to move money in any way. It is ongoing business.

Lastly, on the penalty regime, I suggest that a two-year prison sentence should be a significant deterrent. The penalties in this order are equivalent to those in other, similar sanction regimes. We have not therefore broken any new ground and have followed precedent in this order. The financial institutions which are the subject of this order in the UK are obliged to have systems and controls in place to counter the risk that they might be used to further financial crime. The FSA, as the supervisor, has a statutory duty to monitor those whom it supervises for the purposes of securing compliance with the requirements of a direction. It can impose civil penalties under the Act. Although I should stress that this was under a different part of the UK asset-freezing and financial sanction regimes, it is worth pointing out that RBS was fined £5.6 million in 2010 for the failure to have adequate systems and controls in place to prevent breaches of UK financial sanctions, specifically in relation to Iran. Although that was, as I say, under a different part of the sanction regime, it indicates how seriously the FSA takes these issues.

In conclusion, I suggest that the IAEA's latest report highlights the serious situation we have with Iran's nuclear programme and its possible military dimensions. The FATF, as has been recognised, has made repeated calls for countries to take countermeasures to address the risk of money laundering and terrorist financing emanating from Iran. I hope your Lordships agree that the decision to issue this order is a proportionate and reasonable response to the threat of nuclear proliferation and that this action mitigates the risk of the UK financial system being used to facilitate proliferation-sensitive activities in Iran.

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I thank noble Lords for their engagement with this issue and I hope that my answers to the important questions they have raised have been sufficient. I urge noble Lords to support me in this important matter.

Motion agreed.

Open-Ended Investment Companies (Amendment) Regulations 2011

Open-Ended Investment Companies (Amendment) Regulations 2011
34th Report from the Joint Committee on Statutory Instruments

Considered in Grand Committee

3.56 pm

Moved By Lord Sassoon

The Commercial Secretary to the Treasury (Lord Sassoon): My Lords, these regulations amend the Open-Ended Investment Companies Regulations 2001 to introduce a protected cell regime for open-ended investment companies, or OEICs. They will ensure the segregation of liabilities of different sub-funds held under the same OEIC umbrella company so that investors in one sub-fund will not be liable to creditors in the event of another sub-fund failing.

I would like first to give a little background on why this legislation is needed. Open-ended investment companies are one of two major forms of pooled investment fund. UK regulations for OEICs were first approved by Parliament in 1996 to help UK fund managers compete more effectively in the European market. Collectively, there is around £580 billion in UK-domiciled funds and the work needed to administer those funds brings jobs to a number of parts of the UK, including outside the UK's traditional fund management centres of London and Edinburgh.

Large fund managers generally operate a small number of OEIC umbrella companies with a large number of sub-funds within each umbrella, allowing them to operate a large range of funds more efficiently. The sub-funds, or cells, do not have a separate legal personality but are separately managed, charged, accounted for and assessed for tax. Under current UK law, there is no segregation of liabilities between sub-funds, so creditors of one sub-fund could have a claim on the assets of another sub-fund. While using multiple separate OEICs instead of sub-funds within a single OEIC would protect investors from this risk, it would make operations less efficient and add significant cost to end-users. In practice, the likelihood of creditors having a claim is small, both because OEICs must comply with borrowing limits imposed by the FSA and because feedback from the industry suggests that most credit agreements stipulate segregated liability. However, because this risk has never crystallised, it is not certain how these stipulations would be treated by the courts.

This legislation increases consumer protection and, by doing so, improves the competitiveness of the UK as a domicile for funds. Investors increasingly require

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segregated liability to address the small risk present in umbrella structures. Managers seeking to domicile their funds in the UK need to be able to offer this based on a statutory provision. This legislation does just that. It removes the risk of contagion by providing an effective ring-fencing of a sub-fund's assets from the other sub-funds and the umbrella itself. The Government are introducing the regime to ensure that the UK can continue to compete with other jurisdictions that already operate protected cell regimes. Failure to introduce the legislation would risk funds being unwilling to domicile here.

In deciding how to implement this legislation, the Government have been mindful that, despite the undoubted benefits, there are some potential costs to operators in converting from their existing arrangements. We have, therefore, provided for a general two-year transition period, which may, at the FSA's discretion, be extended for a further year. During this period, existing OEICs cannot enter into any new contract that is not subject to a protected cell regime unless that contract is subject to an existing master agreement which governs the terms of all contracts entered into under it. This should allow firms ample time to convert the necessary contracts, many of which will have come up for renewal in any case. For operators establishing new OEICs, the costs introduced by this legislation are negligible, so they are required to comply immediately with the new regime.

The Government's Plan For Growth, published alongside the March Budget, also announced a moratorium on new domestic regulation for microbusinesses-firms employing nine staff or fewer-for a period of three years. The protected cells legislation complies with this announcement. Microbusinesses will be fully exempt from the legislation's requirements for a period of three years. However, early indications are that they may seek to comply with the legislation earlier, given the benefits it brings.

The UK fund management industry has been calling strongly for a statutory protected cells regime and has warmly welcomed news of its introduction. The industry has worked closely with the Government to get the regulations right and they will bring considerable benefits to investors in UK funds and increase the competitiveness of UK industry. I hope that noble Lords will give their support to the regulations today. I beg to move.

Lord Newby: My Lords, this is a fascinating example of the industry asking for regulation that the FSA seems to have been slow to introduce. This is an almost unique experience for the sector, which is normally grumbling that there is too much regulation.

I am intrigued that it is being introduced here purely under domestic legislation rather than within the ambit of any EU cover, and I wonder whether there is any prospect of OEICs, in this regard, being the subject of any of the many EU directives that are currently on their way down the track or being discussed. I note that, at the moment, the jurisdictions that already have this additional regulation are a mixed bag and include Jersey, Ireland and Luxembourg. I find it slightly surprising that it has taken some time for both the UK industry and the Government to get round to implementing this legislation, given that its

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benefit is that it will improve the competitive position of OEICs in the UK. It seems extremely sensible. I want to confirm what I think the Minister said: that there is no suggestion that this is being introduced because there has been any difficulty with any existing OEICs. Is it purely as a pro-competitive rather than as an anti-competitive measure?

Lord Tunnicliffe: My Lords, I make it clear from the outset that we support this order. I am looking forward to the Minister's answer to the noble Lord's questions about how the regulations fit in with the EU-questions which are particularly apposite at this moment. I will content myself with a few comments on the impact assessment and two or three questions.

The impact assessment is absolutely fascinating. From my reading of it-and I am happy to be corrected here-the net benefit of the regulations will be between £18 million and £360 million, which is a pretty wide range that will involve lots of sums to prove that. The only point that I feel I can take from the impact assessment is that, in all credible scenarios, the introduction of a protected cell regime will be favourable, and I think that we can all be satisfied with that.

I have just a few questions. First, new Regulation 11A(4) provides for an exception, which is referred to in the Explanatory Note. However, for myself I cannot quite see what sorts of transactions or assets the exception refers to. Like all exceptions, one is always slightly worried that the exception ends up negating the intent of the order. I am sure that it does not, but I pose that question for assurance.

Secondly, as I understand it-once again, I could be wrong-there will be a period in which PCR products and non-PCR products will be on sale at the same time. I may have misunderstood that, but if I am right in that assumption, what actions are the Government taking to ensure that there is no confusion in the marketplace during that period of overlap? I will be happy if there is no period of overlap, but if there is one then it is important that we do not introduce confusion through these very sensible regulations.

Finally, I like reading impact assessments, which is a little burden that I have to carry. The wonderful thing about impact assessments is that I always sense that they are written by rather more junior people- I was going to say with rather less care, but care is perhaps the wrong term-as you get that little hint from things. On page 10, the impact assessment states:

"The UK fund regime has been viewed as less favourable by managers and investors for a number of reasons, with the lack of a PCR being one of them".

Perhaps the Minister could enlighten us as to what other reasons exist and what, if anything, he is doing about them.

Lord Sassoon: My Lords, again those questions were short, sharp and to the point. Let me go straight to trying to answer them.

First, my noble friend Lord Newby asked about the interaction with Europe and what else is coming from Europe. The main thing that I see is an up-side opportunity in the link to the UCITS directive and the push to make sure that UK and other fund managers are able to sell products safely on a pan-European basis. I am

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not aware of any particular threats, but I am aware that, given the ongoing work that is looking again at the UCITS directive, there is further opportunity to complete the single market. UCITS 4 has just been implemented, and the UCITS 5 proposals that are expected from the Commission in 2012 are likely to include consumer protection measures on, for example, the use of depositories, so these regulations are part of a piece. As my noble friend said, these regulations are certainly pro-competitive but, as I touched on in my opening remarks, they also act to protect investors-they work for both the provider and the user of these products. Just to be absolutely clear, the regulations are being introduced not as a reaction to some disaster or something having gone wrong but because there is an untidiness and lack of clarity that we should tidy up ahead of the game.

I will answer the questions of the noble Lord, Lord Tunnicliffe. First, on new Regulation 11A(4), this refers to assets and liabilities which belong to the sub-funds; they do not belong to the umbrella company but have been billed to it for practical or legal reasons. They then have to be pushed down to the sub-funds. For example, there are certain generic costs such as Companies House fees and VAT for which the umbrella company, as the only entity with legal personality, is responsible but then needs to attribute to the sub-funds. It is put in there not as a means of driving a coach and horses through; it is there to deal with appropriate liabilities in particular, which have to be allocated down below the umbrella.

There was then a question about the transition period. The Government certainly recognise the importance of clarity for consumers. This is one reason why the protected cell regime will become mandatory after the transition period. In that transition period, the FSA rules require OEICs that are unprotected to make this clear in their prospectuses. Once an OEIC has converted, it will declare that it is protected. The FSA considers this approach to be proportionate and appropriate, given the low risks involved.

Lastly, there was a question about the impact assessment and the comment on page 10 about the UK regime being "viewed as less favourable". Incidentally, this was not an impact assessment that I signed off myself so I had the pleasure of reading it afterwards. I am sure that when the noble Lord, Lord Tunnicliffe, mentioned junior people signing it off, he was referring not to my honourable friend the Financial Secretary or the officials who draft these things but to the authorship. The authorship is every bit as expert as is needed. It is great, anyway, to know that some people read the fine print. This is a long preamble to answering the noble Lord's question.

The other major reasons why people might see the UK regime as less favourable concern perceived tax treatment of funds. The Government are taking steps to address this. For example, only last week the Government announced that they intend to improve the operation of the tax regime for property-authorised investment funds. This will mean that under some circumstances, investors may exchange their units in a dedicated PAIF feeder fund for units in the PAIFs, and vice versa, without incurring a charge to tax on capital gains at the time of exchange. This was a

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specific response to industry representations and will improve the competitiveness of the UK funds regime. We are responsive to other issues out there, which are generally around taxation.

I hope that that deals with the Committee's questions. This is legislation that strengthens investor protection in a way that brings considerable benefits to the competitiveness of the UK as a domicile of funds. I therefore commend these regulations to the Committee.

Motion agreed.

Arrangement of Business


4.14 pm

Earl Attlee: My Lords, the Statement or Division is likely to occur very shortly. Unless any noble Lords object, I propose to adjourn the Committee until after the Statement.

The Deputy Chairman of Committees (Lord Skelmersdale): My Lords, this is a most unusual procedure. I note that the Opposition Front Bench spokesman has not yet finished speaking in the Chamber, nor has the Minister responded. However, I am of course in the hands of the Grand Committee.

The Marquess of Lothian:In referring to the end of the Statement, does the noble Earl mean the end of my noble friend Lord Strathclyde's Statement or the end of proceedings on the Statement as a whole, which I see has been extended to 40 minutes?

Earl Attlee: My Lords, I was referring to the end of the proceedings on the Statement. If the Committee wants, it can start considering the report but my advice is to adjourn.

Lord Foulkes of Cumnock: My Lords, what is happening in the Chamber is fairly open-ended. If we adjourn, by the time the Statement and all the interventions are finished it could be quite late. A number of noble Lords wish to speak in this Committee and it could drag on and on. It might create problems for the Grand Committee in terms of the time we are able to meet. I counsel us to continue.

Lord Tunnicliffe: My Lords, perhaps I may suggest a compromise-that we proceed with the debate and adjourn when the Statement is notified.

Intelligence and Security Committee Annual Report for 2010-11

Intelligence and Security Committee Annual Report for 2010-11

Considered in Grand Committee

4.15 pm

Moved By The Marquess of Lothian

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The Marquess of Lothian: My Lords, I understand that these proceedings may be interrupted. Having served for many years in the other place, I am quite used to being interrupted and to coming back to where I was at the start. I think this is perhaps the best way to get our business done.

This is the first opportunity I have had to speak in this House on the work of the Intelligence and Security Committee, on which, both in the other place and in this House, I have had the great privilege to sit since January 2006. I am not the longest serving member of it-George Howarth remains the longest serving member-but I am one of the longest serving members.

I note that when the previous report was considered by your Lordships on 30 March 2010, a number of representations, including one from the noble Lord, Lord Foulkes of Cumnock, were made for an increase in the number of representatives from this House on the committee. At that time, there was only one, the noble Lord, Lord Foulkes of Cumnock-a much valued colleague on the committee-who on that occasion moved consideration of the report, as I am doing today. I am delighted that those representations were heeded and that there are now two Members of this House on the committee. I am even more delighted that the other, who has not yet joined us-but I am sure he will shortly-is my noble colleague, the noble Lord, Lord Butler, who represents the Cross Benches and brings with him the broad knowledge and unique insight that come from not only having been Cabinet Secretary but having conducted the 2004 review of intelligence on weapons of mass destruction.

Lord Foulkes of Cumnock: I was going to raise this point in my speech, but it is perhaps better raised now. The noble Marquess is right, we argued on both sides of the House that the number should increase. He is also right that the noble Lord, Lord Butler, will bring a unique and interesting perspective to the work of the Intelligence and Security Committee. However, is it not strange, ridiculous and unacceptable that there is no Member of the Opposition in the House of Lords on the committee? It is quite ridiculous. The total number of members of the committee, including those from the House of Commons, is nine, of which only three are Members of the Official Opposition. This is a scrutiny committee which challenges the work of the intelligence agencies from time to time, and to have such a poor representation of Labour members-and not one from the House of Lords-is quite unacceptable. That point was made by the Opposition Chief Whip of this House at the time and, unfortunately, was not accepted by No. 10 Downing Street.

The Marquess of Lothian: I am sure that what the noble Lord, Lord Foulkes, has said will be heard more widely. I would answer him in this way: as he will see from the report, we are at the moment seeking to have the nature of the committee reformed in a fundamental way. That process is being undertaken at the moment through the Green Paper and I shall come on to it later in my remarks. However, it would be premature to get involved on this before the process has at least got under way and the kind of points made by the noble Lord can be considered.

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Even though he is not in his place, I must say that it is a great pleasure for me-as I hope it is for other noble Lords-to have the noble Lord, Lord Butler, on the committee. It means that I can speak more briefly in this debate than otherwise might have been the case because I am confident that he will, with far greater skill, cover all the areas which I fail to cover and may indeed correct me on those areas where I get it wrong.

This is the first annual report of this committee produced under the chairmanship of Sir Malcolm Rifkind, who I am sure all other members of the committee would also like to thank for his excellent leadership over the past year. I should also like to thank the members of the committee from the other place.

As the noble Lord, Lord Foulkes, knows, the ISC is unique in many ways, but perhaps the one that strikes you most when you first join it is the level of consensus on the committee and the absence of party politics from our discussions. That is an important part of the nature of the committee and makes serving on it an even greater pleasure. The abiding ethos of the committee, as noble Lords here today who have served on it in the past know, is one of trust-trust between members, of course, but also, and more importantly, between the committee and those who it is the committee's responsibility to oversee. We work in an environment where secrecy is often required by the national interest and where, if oversight and scrutiny are to be comprehensive and effective, trust in that secrecy is of the essence.

The same stricture of secrecy also means that the full report, which we are required to submit to the Prime Minister, has to be redacted in certain areas before it is more widely published, to protect that same national interest. As noble Lords will know, these redactions appear as asterisks in the report before your Lordships and have in the past-I must plead guilty of this myself in a previous political incarnation-been the cause of not just complaint but often ridicule. However, in truth, redactions are inevitable and necessary if the committee is to produce a comprehensive report for the Prime Minister. We have conscientiously striven this year to keep redactions to the minimum consistent with the production of that comprehensive report.

This year we have also preceded our report with a section on key themes, which we hope will provide a more structured introduction to the rest of the report by indicating those areas of particular interest to the committee and explaining why they were of such interest. In the past, I always found that these reports tended to be very piecemeal and quite difficult to follow. We felt that it would be for the benefit not just of this House and the other place but of the wider public as well if we produced an introduction of themes that at least gave some shape to the rest of the committee.

I am delighted to see that my colleague, the noble Lord, Lord Butler, has now joined us. At the risk of repeating myself, I said earlier that it is a pleasure to have him on the committee. It makes my speech today shorter, and I am sure he will fill in the gaps and correct me where I have got things wrong.

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In general, noble Lords will see from our report that it has been a very busy year for the committee. Indeed, we made a record number of conclusions and recommendations. The report covers several important issues. I do not want to take too much time today; I just want to highlight a few of them.

The first relates to funding for the single intelligence account. In the current economic climate, the committee recognised that the flat cash settlement that the intelligence agencies received in the spending review was fair. This was reflected in what the agencies themselves told us. They will, in broad terms, be able to maintain their key coverage and capabilities. Nevertheless, the committee has recommended that the settlement must be kept under review. The Government must be willing to revisit the funding available to the agencies if there is a significant change in the threat. We cannot prioritise budgets in advance if the security of the country is at stake. The Government's response to the committee report responded to this and mentioned agility, flexibility and reprioritisation-wonderful words, but I am not certain what exactly they mean in practical terms. It did not mention the possibility of an adjustment in the settlement should that be necessary. In the light of events that are coming over the next 12 months and beyond, we believe that this is important. I would therefore welcome the Minister's confirmation that, should the threat change significantly-that is the condition-there is scope to revisit the single intelligence account.

I should also like to draw the Committee's attention to the recommendations on cybersecurity. The threats that exist in cyberspace are familiar ones: theft, fraud, exploitation of the vulnerable and espionage, to name just a few. However, the internet provides criminals and spies with a new avenue of activity, where these deeds can increasingly be carried out with greater anonymity behind a cloak of binary digits and encryption. It is a rapidly growing threat to our security and prosperity, and the ISC in previous reports had urged the Government to increase the funding and priority of this work. Therefore, we welcome the Government's decision to list cybersecurity as a top-tier threat in their national security strategy, and we welcome the new funding that has been made available to fund cyber-related work. Half of this new money will go to the intelligence agencies, which is very much in our view to be welcomed. However, there is still a great deal of work to be done in this area.

While the committee has welcomed the increased priority being given to cyber, the downside has been the proliferation of new teams and units working in this area. There are at least 18 departments, units and agencies involved in this work in some way, and the committee remains concerned at the risk of duplication and lack of co-ordination in this essential field.

Many other important matters are mentioned in our annual report, including the very welcome establishment of the National Security Council itself, matters relating to detainees and rendition, counterterrorism work and Olympic security, to name but a few. I do not propose to cover them now, as the report sets out our views clearly, and no doubt your Lordships will wish to raise

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some of them during the course of the afternoon, as I am confident will my colleague, the noble Lord, Lord Butler.

I want to turn now to the wider issues that we mention in the report. One that has exercised the committee this year and which we touch on in our annual report is the future of the committee itself. The ISC has been in existence under statute for some 17 years now. Since it was established under the 1994 Act, the threats that we face have changed and, in response, the intelligence community has had to change as well. The work of the committee has evolved to take account of this. However, public expectation of transparency and openness has increased significantly during this time, and the committee must ensure that it has the powers and the remit necessary to provide reassurance to the public and to Parliament. We therefore made it a priority in the first year of this Parliament to review the committee's role, structure, remit and powers. We concluded that the current arrangements are now significantly out of date. The committee therefore produced radical proposals for change designed to increase accountability, transparency and capacity for oversight of the intelligence community as a whole. The timing of our review was fortuitous; the Government were in the process of producing a Green Paper, now published, on the protection of intelligence material in the courts and were considering how, if they were to recommend changes in the power of courts, oversight of the agencies should be strengthened to compensate for that. The committee therefore put its proposals for change to the Prime Minister.

Noble Lords will have seen that the Government's Justice and Security Green Paper for the most part reflects the committee's recommendations. Under the proposals, the Intelligence and Security Committee will become a committee of Parliament, something that it has not been in the past; it has been a statutory committee of parliamentarians under the authority of the Prime Minister. We are seeking for it to become a committee of Parliament, with the necessary safeguards, reporting to Parliament and to the Prime Minister. The remit of the committee will reflect the fact that the ISC has for some years taken evidence from and made recommendations regarding the wider intelligence community and not just SIS, GCHQ and the security services, which were its statutory responsibility. It will also reflect the fact that the committee is not limited to examining just policy, administration and finances, which were also part of its statutory remit, but encompasses all the work of the agencies. Further, the committee will have the power to require information to be provided.

However, there are two issues on which the Green Paper does not entirely reflect the Government's proposals, which I wish to raise now with the Minister. The first relates to oversight of operational activity. The work of the agencies cannot be understood fully, let alone scrutinised effectively, without regard to operational matters. The ISC has for many years had access to operational material and has reported on operations publicly and in confidence to the Prime Minister. That includes reports as far back as the 1999 inquiries into Sierra Leone and the Mitrokhin archive, when the

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committee was still relatively new, through to more recent examples, such as the 2007 inquiries into the 7/7 bombings and the 2009 inquiry into the Binyam Mohamed case. Some of these investigations were at the express request of the then Prime Minister, and others were instigated by the committee itself. They were all specific operations that gave rise to public concern and significant national interest. They were all inquiries in which the committee had access to specific, detailed operational material.

The committee considers that the arrangements that have taken place in practice should now be formalised and that this work should be placed on a statutory footing. However, the Green Paper is less than forthcoming in this regard. It states only that,

I underline once again that this is not something new, but something that has been happening over the past few years. Access to operational information is fundamental to the work of the committee. The Government must recognise that to deny the committee access to operational material would be a major step backwards from the current arrangements at a time when the Government say that they are seeking to strengthen oversight. I would welcome my noble friend's assurance that he and the Government will look forward in this respect and not backwards.

The second issue on which I would welcome clarification from my noble friend is the committee's resources. Currently, it has limited personnel resources. However, the changes that are envisaged to its powers and remit will increase that requirement and will involve new ways of working. The key difference will be as a result of the committee's new power to require information to be provided. At the moment, it is reliant on the agencies themselves considering and summarising their information.

The Deputy Chairman of Committees (Lord Skelmersdale): My Lords, there is a Division in the Chamber. I do not know whether the noble Marquess intends to finish very shortly. If not, we will adjourn the Committee for 10 minutes.

The Marquess of Lothian: I have a little more to say, and I think it would be better to adjourn and return.

4.33 pm

Sitting suspended for a Division in the House.

4.43 pm

The Deputy Chairman of Committees: My Lords, I apologise for interrupting the noble Marquess. The Committee is now in session.

Earl Attlee: My Lords, it will be for the convenience of the House and the Committee if we adjourn the Committee until a point three minutes after the conclusion of the Statement in the Chamber.

4.44 pm

Sitting suspended for a Statement in the House.

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5.59 pm

The Marquess of Lothian: My Lords, after this lengthy adjournment, I fear that I still have a number of issues to discuss from this lengthy and comprehensive report. I will touch on them as briefly as I can.

When we adjourned, I was discussing how the committee must be able to look at operational information in order to carry out its job of scrutiny properly and I was just beginning to touch on the second issue, which was to ask the Government for clarification with regard to the resources of the committee. We currently have limited personnel resources, but we are now looking at changes to enable the committee to require that information be provided. While at the moment the committee is reliant upon the agencies considering and summarising their information, in future the committee's staff will need to be engaged in this process to assure the committee that it has the information it requires. This is very important, particularly following the inquest that we heard earlier this summer, where the deficiencies in the information provided by the agencies were shown to have put the committee at a disadvantage.

Due to the sensitive nature of the material involved, the intelligence community is not subject to the same level of public scrutiny as other departments' agencies. It is not subject to regular debates or questions in Parliament; academic research is limited to matters of somewhat distant history; investigative journalists cannot delve very deeply; and it is exempt from freedom of information. The responsibility for independent parliamentary oversight and security therefore falls to this committee and to the Intelligence Services and Interception of Communications Commissioners whose role is to check the legality of the agents' activities. That is why both must be adequately supported, so I urge the Minister to accept that this will not be possible unless the committee has sufficient staff of adequate seniority and authority.

I now turn to the thorny and increasingly important question of protecting intelligence material in court proceedings. In the committee's report on rendition in the last Parliament, we highlighted the importance of intelligence exchanges with foreign liaison partners. We explained that the United Kingdom cannot work in a vacuum and that we depend upon the co-operation of others. We concluded:

"Our intelligence-sharing relationships, particularly with the United States, are critical to providing the breadth and depth of intelligence coverage required to counter the threat to the UK posed by global terrorism. These relationships have saved lives and must continue".

These relationships are based on confidentiality. Intelligence is shared on the understanding that it will be protected. If our allies fear that their material might be disclosed by our courts-and after this summer they have good reason to fear this-then they may reduce their co-operation. In other words, if we cannot protect it, we will not be given it in the first place. The committee has heard first hand from those within the United States intelligence community that the decision of UK courts in recent cases to disclose US intelligence material has damaged the UK-US intelligence relationship. On a visit earlier this year this was said to us often

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and-as I am sure my colleague, the noble Lord, Lord Butler, will endorse-with some great force. This is of serious concern. The United Kingdom must honour its obligations to protect foreign intelligence material from disclosure.

We therefore support the Government's initiative in bringing forward the Justice and SecurityGreen Paper and in looking for a way to honour our obligations. The Green Paper proposes that closed material procedures, including the use of special advocates, be extended to civil cases. The committee considers this to be a step in the right direction. However, it does not on its own provide the answer, nor does it offer certainty to those that we work with that their information is safe with us. The Green Paper recognises that closed material procedures would only "reduce"-not eliminate-

The Green Paper does, however, raise the possibility of a statutory presumption against the disclosure of intelligence material. This would have the advantage of providing a clear indication to judges of Parliament's intention in relation to such material. Such a presumption would be invaluable to a court in seeking to understand Parliament's intention in this respect. Any presumption would of course be rebuttable, so the final decision would lie with the courts-we are not trying to take the courts out of it. However, there would need to be a compelling reason for the judge to rule against such a presumption. We regard that as the right balance to strike in these very difficult and important circumstances. Therefore, we consider that this rebuttable presumption should be included in addition to the closed material procedures. The combined package would still not offer a total guarantee to our allies, but it would provide far greater protection than the CMPs alone. In seeking to protect the UK, we must work with others who must feel confident that we will protect the information that they share with us. We must give them that confidence. Therefore, I hope that my noble friend will consider our recommendation that a rebuttable statutory presumption should be included as part of a package of measures.

Finally, I want to pay tribute to the men and women who work for our security and intelligence agencies. As we have seen on the committee, it is a difficult job, which inevitably receives little if any recognition, where successes cannot be celebrated and decisions cannot always be easily defended in public. The Intelligence and Security Committee plays an important role in holding the services to account, scrutinising their actions and criticising them where that is necessary. However, we also believe that we must be their champion and congratulate them on a job well done behind the scenes, as I unreservedly do now. I commend the report to the Grand Committee.

6.06 pm

Lord Foulkes of Cumnock: My Lords, let me first say how much I welcome this debate, with two reservations-it would not be from me if there were not a couple of reservations. The first is that we are having the debate in Grand Committee and not on the Floor of the House. Secondly, the debate follows two Treasury instruments, which suggests that the House

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does not give enough importance to the work of the Intelligence and Security Committee and the agencies. I hope that, in the future, the usual channels will think of the possibility of holding the debate on the Floor of the House so that a larger number of people may not only participate but hear about the work, so that it can get to a wider audience.

However, I congratulate my noble friend the Marquess of Lothian. He is my friend because in the other place he and I were paired for many years-we managed to find opportunities to travel the world together-and then we were members of the Intelligence and Security Committee, which I served on for four years. I know how diligently he serves on it and how impressive he is as a questioner on that committee. He has shown by his introduction today the depth of his knowledge and understanding of the committee's work.

I commend the work done by the noble Lord, Lord Butler, who brings a slightly different perspective to the committee. Now that he is here, I repeat what I said earlier with absolutely no disrespect whatever to him. He is clearly a very powerful and important Member of this House and I know, from the accounts of members of the committee, that he does an extremely good job on it. It is very unfortunate that this House is not better represented on a committee such as this. I argued this, as did others, in the debate on 30 March last year. We succeeded in doubling the representation but it is slightly odd that there is not a Member of the Official Opposition from this House serving on the committee. It was unfortunate that No. 10 saw fit not to take account of the representations made very forcefully by our Chief Whip. It was a pity that that happened.

On 30 March last year, we had a very interesting debate, in which the noble Lord, Lord King, participated. I am sorry he is not here today; he participated very effectively, as those Members who were here will recall-it is included at column GC 544 of the Hansard of that day. He argued very strongly that the credibility of the committee would be much greater if it had an opposition member as chairman. Obviously, that did not carry much weight with the new Government when they took over. Again, I mean no disrespect to Sir Malcolm Rifkind, whom I have known for as long as I have known the noble Marquess, Lord Lothian, and for whom I have the greatest respect. I think that the noble Lord, Lord King, had a very good argument there that, on a committee such as this committee, it helps to increase its credibility if an opposition member chairs it.

Those are my general comments, but I also want to comment on the reform of the committee. We discussed that when I was a member of the committee, and I hope I am not giving away too many secrets-on that committee, we learnt the importance of not giving away secrets. As far as the committee was concerned, I strongly supported the change in the nature of the committee, and I am sure that the noble Marquess will recall that. Indeed, it was the then Prime Minister Gordon Brown who suggested that the committee might become more open, have public sessions and look towards becoming a parliamentary committee of both Houses. He urged movement in that direction.

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I supported that, but there were members of the committee who did not agree. I am very glad to hear that the committee is now, as I understand it, unanimously in favour of moving towards reform of the structure of the committee. I hope that the Minister will give an indication in his contribution as to whether that has the support of the Government and whether we will see the necessary legislation in the forthcoming Session of Parliament. I think it would be right to move in that direction. I agree with the committee. It would be more transparent and accountable if that took place. There are problems in relation to certain parts of the evidence being dealt with in public, and meetings would have to be held in private, but the more meetings that can be held in public and the more that Parliament is responsible for the nomination of the members of the committee, the better.

The items that I want to raise that arise from the report relate not to the specifics that the noble Marquess raised but to wider questions of national security policy and, specifically, to the role and the nature of the national adviser. I am now a member of the Joint Committee of both Houses of Parliament on the national security strategy, which is under the chairmanship of my right honourable friend Margaret Beckett. We recently had evidence from the current national security adviser Sir Peter Ricketts, and I was disappointed in it in a number of ways. Page 39 of the Intelligence and Security Committee report records that the national security adviser has three main roles and that the second is,

I think that is a very important point. When Sir Peter Ricketts appeared before us-I am quoting from the uncorrected evidence-he said:

"The second role is effectively as a foreign policy adviser to the Prime Minister".

He did not say "foreign and security policy". I think that, with his Foreign Office background, Sir Peter-who is on his way back to the Foreign Office to become our ambassador in Paris-unfortunately sees himself very much as a Foreign Office person. There is a problem in that kind of role of national security adviser where the two roles have been combined. Sir Peter sees it very much in foreign policy terms. With no disrespect to the Minister, Foreign Office officials sometimes have a particular set of blinkers that means that they do not look at the wider context.

There was also a very strange exchange between the noble Baroness, Lady Ramsay of Cartvale, and Sir Peter Ricketts. I will quote from the transcript. The noble Baroness, Lady Ramsay, as well as having served with great distinction on the ISC, has a better working knowledge of the agencies than most of us here. She asked:

"Is it not constitutionally slightly odd that you are writing the confidential annual reports of the heads of intelligence agencies?".

He told us that he is in effect the line manager of the heads of the intelligence agencies. When I served on the Intelligence and Security Committee, that never occurred to me. It occurred to me that C and the director-general and the head of GCHQ were working

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independently and with their own, wider authority, reporting directly to Ministers and particularly to the Prime Minister, but Sir Peter Rickets said that,

I do not know about the noble Marquess, or the Minister, or other Members of this Grand Committee, but I never saw them as that when I was on the committee. I wonder whether something has subtly changed over the last couple of years in terms of the reporting arrangements for the heads of the intelligence agencies. That would be unfortunate.

Another thing that came up in our evidence was that Sir Peter Ricketts has the responsibility for co-ordinating the work of agencies throughout government and for this whole aspect of the work of government. When we asked who had replaced the noble Baroness, Lady Neville-Jones, in particular terms-and previously the noble Lord, Lord West, who had a wider remit than just in the Home Office, although Mr Brokenshire deals with it in the Home Office-we were told that each department on the National Security Council has a Minister responsible. But it seems that no one at ministerial level, apart from the Prime Minister himself, is co-ordinating national security right across government-across all aspects, whether it be energy supply, defence or a whole range of other responsibilities. That seems unfortunate. The interesting thing was that Sir Peter thought that he could co-ordinate it as an official but somehow it was impossible for a Minister to take on that role as well.

My penultimate point is that I also raised with Sir Peter Ricketts on that occasion the question about Scotland, and the potential threats to national security arising from the demands of the present Scottish Government for independence. The astonishing thing was that no work is being done, according to Sir Peter Ricketts, to look at the security implications of the increasing demand for Scottish independence. I hope that the Minister will either confirm or deny this. I raised the question, and was supported by a Conservative Member of Parliament on the committee, about the division of oil reserves if there was a dispute on that, or if the policy of the Scottish Government was different from the United Kingdom on the deployment of Trident-as it is-and on membership of NATO. This raises some implications that ought to be thought about.

Those are the only substantive points that I want to raise today. I want to conclude as the noble Marquess concluded, with a word of thanks not just to the members of the intelligence and security services-MI6 or SIS; MI5 or the Security Service; and GCHQ-who do, as the noble Marquess said, a fantastic job. But as I am sure the noble Marquess would concur, we should say a word of thanks to the staff of the committee, who came under sustained pressure during my time on the committee and weathered it extremely well. One advantage of moving towards a different structure for the committee, where the responsibility is not to the Cabinet Office but to Parliament, is that it would protect them in a way that they were not protected during a very difficult situation in the very important and excellent work that they do to service the committee.

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6.20 pm

Lord Alderdice: My Lords, I, too, thank my noble friend Lord Lothian for obtaining this debate and for his sterling work on the committee and the report that has been produced. I declare two interests, one as president of ARTIS Europe, which is a research and risk analysis company that takes an interest in areas of politically motivated violence and terrorism, and the other as a customer of the Security Service during the past seven years as a member of the Independent Monitoring Commission. We spent a good deal of our time working with various elements of the Security Service here in the United Kingdom, the Republic of Ireland and elsewhere.

This is an extremely worthwhile report, which merits considerable study. I want to refer only to a few aspects of it. I could pick up on some of the positive remarks about, for example, the National Security Council, which seems to be an important development. I could pick up also on the concerns expressed about the BBC Monitoring service, an issue referred to in general terms in your Lordships' House but very specifically in this report. I welcome not only what the report had to say but some of the remarks in the Government's response to it.

I note what my noble friend said about concerns about confidentiality in respect of our partners and material coming into the public domain. This is a very difficult area to put into structure and regulation. In the Independent Monitoring Commission, we found ourselves meeting at a very early stage, because it was a somewhat unusual body, as my noble friend knows from his own experience in Northern Ireland. Quite quickly, rather more because of the personnel than of the structure, we were able to build up a sense of confidence with our interlocutors. That was able to function adequately over a period in excess of seven years during which we published some 26 reports. That confidence was not maintained purely by the structures in place, though some were important, but because of the personnel and the relationships between them, which are very difficult to legislate for. It is extremely important to come to understand those things which you can, and should, properly put in the public domain and those matters which have to be dealt with in another way. Without that, it is impossible to do serious work in this area. Structures alone will not address that.

Let me come to the more specific areas that I wish to concentrate on. First, on Northern Ireland and republican terrorism, my friend the Minister of Justice in the Northern Ireland Assembly, David Ford, recently remarked to the Assembly in answer to a question that the level of attacks was not currently increasing, which was very welcome news, because, during our period, they had continued to increase. I am absolutely clear, as I think he was, too, that that is not because the level of activity has diminished but rather because of the excellent work of the security services, the police and the Garda Síochána. It is quite clear that there is still a very high level of dissident republican activity, but it is being foiled by excellent work. I take this opportunity, as other noble Lords have done, to convey my own appreciation to those involved, in so far as I can on

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behalf of the people of Northern Ireland, for the protection afforded to them and other people in the United Kingdom by their extraordinary work. One of the difficulties about it is that, as with good civil servants' work, when it is successful you do not see anything publicly and people then take for granted that everything is fine. That is a little bit dangerous because people then let their security guard down and something terrible can happen. With good civil servants' work and good security work, it looks as though everything is going swimmingly, which is only because of the quality of the work that has been undertaken.

I was gratified to note the recognition of cybersecurity as a tier-1 risk, as is recorded in the report. It is important to understand that this is not simply a question of traditional terrorists, whether domestic or international-although they are mostly international-using the modality of cyber to arrange traditional-style terrorism. In other words, cyberterrorism is not about people communicating with each other using the internet in order to plant bombs or all the other things that terrorists traditionally do. Rather, there are new ways of engaging in attacks that are mediated entirely through the internet-for example, the damaging of government infrastructure and the necessary national utilities. These are very real dangers not just in the defence field but in all aspects of life, including things such as water and electricity, not to mention all our own practical activities. That struck me very forcibly some years ago when some Taiwanese colleagues made it clear to me that, in the Taiwanese Parliament, every parliamentarian's computer was being hacked into every single day. I think that some colleagues in your Lordships' House and elsewhere might not be quite aware of the vulnerability of many of these things, although I know that that is not the case with noble Lords in this Room.

The whole area of cybersecurity presents an enormous difficulty and challenge, including on a number of elements that I note are mentioned in the report. First, the question of staff retention and pay, which is referred to, is a very difficult issue. In some long discussions that I had on this front, a young man who runs a company in the United States remarked to me that one of the problems with those who are most skilled in this area of work is that they are often-though this may surprise some noble Lords-not qualified with university degrees, but they are extremely skilled in this work and they have a very particular set of personality attributes and a particular way of working. When a number of small companies were established that became very effective in providing anti-hacking services-largely, setting a thief to catch a thief-a number of the large corporations saw this work as an ideal undertaking. There was clear money to be made and the expertise was available, so these large corporations bought over a number of these small firms. As far as I am aware, almost none of them survived because, brought inside a corporate structure, this was not the way that these young men-and they are almost all young men-functioned. Therefore, one of my questions for the Minister is: how are departments finding the challenge of engaging some of these young people who are not the traditional personalities for the Civil Service or the security agencies or the military or the

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police? In fact, these are the kind of young people who might be firmly outside these structures, yet they are exactly the kind of people that we need inside if we are to deal with this kind of problem. The report talks about this issue in terms of finance, but I really think that it is much more about other things in addition to the question of finance.

That leads me to the issue of psychological research in these areas. I have been to a number of conferences recently where it has become clear that huge amounts of money are being spent on hardware and on software, but very little is being spent on understanding the psychology of the kind of people who get involved in these sorts of activities. This was commented on in a recent conference that was promoted by the right honourable Foreign Secretary, at which Misha Glenney-a former BBC journalist who has recently published an excellent book on the subject-pointed out that almost no work has been done in this area. For me, that is reflected in the report, which highlights key themes as: "Organised crime"; "Hostile foreign activity" coming from Governments and so on, which is absolutely true; and "Terrorism". However, the report does not refer at all to what is commonly known as "hacktivism", whereby young people become involved in activities that become crime, because they break the law, but their intent is not that of traditional organised crime to make a lot of money; much of it is about gaining respect for themselves as serious operators on the internet. However, they then get themselves in trouble and find themselves on the wrong side of the tracks and on the wrong side of the law. I was struck by the fact that that is not identified in the report as a fourth area. This is not organised crime, or terrorism per se, or foreign activity in terms of Government and armies and so on, but it causes us a great deal of problems. That suggests to me that there is something about the whole psychology of this new space that has been created-as well as land, sea, air and space, we now have a new context for engagement and, indeed, for war.

That leads me to another question about legal research. I submit that if the Stuxnet attack had happened in an equivalent way on land, at sea, in the air or even in space, it would have been regarded as a declaration of war. However, despite the great problems that it obviously caused for Iran, it does not seem to have been regarded in that way. At this stage, without waiting for something to happen, a serious piece of work needs to be done in international law to explore at what point such a thing becomes a declaration of war, at what point can it be responded to only by cyber-response and at what point by other kinds of response. There is a lot of work to be done in that area.

The Marquess of Lothian: On that point, this is an important question and the real problem in this area is one of attribution. All the evidence that we have taken suggests that it is very difficult, when you get a worm of the type that Stuxnet was, to find out where it has come from.

Lord Alderdice: My Lords, my noble friend is absolutely right. That is why there is a problem, to which there is no simple answer. Great damage is done whether the

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attribution can be established or not. Sometimes in the past people have not waited to establish the attribution. A doctrine of pre-emption, which I do not in any way recommend or commend, was created by a previous American Administration. The point is that sometimes we have to find a way of dealing with these things. I simply seek reassurance from the Minister that it is being actively looked at by those with the experience and legal expertise to address the question.

To some extent, that leads me to the question of attribution more generally and in regard to research. Some comments were made about the threat of al-Qaeda, including that in the Arabian Peninsula and other places. In looking at it, it seemed to me that there was rather a surface view of the thing. For example, many of those who get involved in Yemen in support of al-Qaeda in the Arabian Peninsula are concerned about their local situation, as was the case in Afghanistan. There are a small number at the top who have all these notions about the caliphate and so on, but they are not necessarily carried forward because everyone who is involved on the ground believes that. That is extremely important in understanding how to deal with it.

Let me give a specific example from our own country. There are those who have looked at the way of thinking of young people who are potentially vulnerable to being involved in terrorism in this country. I commend the noble Lord, Lord Foulkes, for pointing out that this is not always a question for foreign policy; it is very much a domestic issue. The view has been taken that it is about fundamentalist views. The job is to persuade young people not to have these hard-line, extreme, fundamentalist religious views. I have always had some doubt that it is possible to persuade young people of anything of the kind. Indeed, the more adults try to do it, the less likely young people are to go along with it. However, research has recently suggested that that is not the best way to deal with it anyway. Even if these people have very fundamentalist views and, at the same time, accept that democracy and the rule of law is the only proper way to change and govern society, they are not vulnerable to becoming terrorists.

That is an extremely important question to be explored, so I seek some assurance from the Minister that research is not necessarily being done only by those inside the services, who may have a particular expectation of research. Those of us with any passing understanding of academic research know that it is extremely important that people do not come with preconceived ideas. Those inside the services cannot but have preconceived ideas. Is there any role for research that is being done externally, on a more objective basis, to inform the work of the security services?

On the issue of being up-to-date with difficult questions, we have had a strategic defence and security review, but we have just come from the Chamber where we have been looking at the dramatic and disturbing changes taking place in our own continent of Europe. Only a couple of days ago, General Martin Dempsey, chairman of the United States Joint Chiefs of Staff, said that he was "extraordinarily concerned" about euro survival, civil unrest and the break-up of

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the EU. Again, this is not a question of distant places but of our own part of Europe. I seek reassurance- I do not ask for anything more-that our intelligence services are paying attention to the real and present danger of unrest in Europe over the next few years as the weight of financial difficulty and political disjunction begins to bear down. That may be, sadly, a substantial part of the work of our security services which is not, as yet-I understand why because the report is now a few months old-focused on in the report.

6.36 pm

Lord Butler of Brockwell: My Lords, it is an honour to represent your Lordships' House on the Intelligence and Security Committee, not least because I share the view which has been expressed that the committee's work is very important. It is also a pleasure to serve on such a distinguished and experienced committee, which is very ably chaired by Sir Malcolm Rifkind, with his experience as a former Foreign Secretary and Defence Secretary, and is supported by a first-rate secretariat. I was glad to hear the noble Lord, Lord Foulkes, refer to that. The committee also contains others with ministerial and Front-Bench experience in the Home Office and the Northern Ireland Office, including, notably, the noble Marquess, Lord Lothian, with whom it is a special pleasure for me to share the representation of your Lordships' House.

As the noble Lord, Lord Foulkes, has referred to the chairmanship of the committee, I see the argument that such committees should have a chairman drawn from an opposition party. However, I am absolutely confident that I speak for the whole committee when I say that when we have the good fortune to have a chairman of the calibre, energy and experience of Sir Malcolm Rifkind, that trumps every other argument.

Lord Foulkes of Cumnock: Perhaps I may make two things clear. First, I was repeating the argument that the noble Lord, Lord King of Bridgwater, made last year; it was not I but he who was arguing for an opposition chairman. Secondly, having known Malcolm Rifkind since we served together on Edinburgh City Council, I wholly endorse what the noble Lord, Lord Butler, has said.

Lord Butler of Brockwell: My Lords, the importance of the work of the committee has grown because of the greatly increased salience that the intelligence services have gained in our national life. It is a long time-many decades-since their activities were directed only against foreign antagonists of this country. Sadly, the growth of terrorism-first Irish and then other forms of criminality and terrorism, not only Islamic-has meant that the activities of the intelligence services have had also to involve citizens of our own country. It is therefore right that the agencies should no longer operate wholly in the shadows but that legislation should have been passed to put them on a statutory basis, to regulate them and to hold them accountable to Parliament.

At the same time, much of their activity has to remain secret. On that secrecy their effectiveness and the trust and co-operation of allied countries and

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those who would help them depends. We have to combine accountability with the protection of legitimate secrecy, and that is where a committee of parliamentarians has an important role to play.

Two other circumstances have affected the role of the intelligence agencies in today's world. One-and this point has not been made this afternoon-is that their work has become much more international. Terrorism, espionage and criminality no longer respect national boundaries, if they ever did. This means not only that we have to work much more closely with allies and other countries with shared interests, but that the agencies within our own country-both outward-looking and inward-looking-have to work much more closely together. The committee has seen that development and it welcomes and encourages it.

The second development is that the advance of technology means that the methods and instruments of intrusion into the lives of individuals and institutions have greatly expanded. The noble Marquess, Lord Lothian, and the noble Lord, Lord Alderdice, rightly referred to cybercrime and the threat that it presents to public and private institutions in our country. Other examples are the extraordinary development of satellite imagery and the more mundane but equally intrusive proliferation of close-circuit television cameras, through which those pursuing their legitimate business around the streets of London may these days be recorded several hundred times in a single day. Quite rightly, the Protection of Freedoms Bill before your Lordships' House provides for regulation of the uses to which such recordings can be put.

I mention these developments because it must be the responsibility of those who supervise the agencies on behalf of Parliament, within the ring of secrecy, to ensure not only that the agencies are efficient and effective in their vital work, but that they use the instruments of intelligence-collection available to them both proportionately and responsibly. I want to refer to a point made by the noble Lord, Lord Alderdice, picking up on the report, about the remuneration and character of those who work within the agencies. On the character of those people I think that I can reassure him. When one has the privilege of meeting staff of the agencies, one can be certain that it never has been the case that they are conventional, like any other civil servants. There are a lot of unconventional personalities.

Two other things hold them to the agencies-in addition to remuneration, which is very important. One is the importance with which they regard their work, which is a very important factor in morale, and the other is the excitement, originality and opportunities for enterprise within the law. They are the sort of people who can be relied on to operate in that way.

I was Cabinet Secretary when the legislation establishing the Intelligence and Security Committee was passed in 1994. I well remember the hesitation and anxiety with which the Government and agencies regarded the admission of parliamentarians into the ring of secrecy at that time-hesitation and anxiety which I confess I wholly shared. The committee has come a very long way since then in building the confidence of successive Governments and the intelligence community. The

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fact that it has done so has been due to the responsibility and wisdom shown by successive members of the committee, and I pay tribute to them. Over the past 17 years, there really has not been a major incident to damage that confidence, and that is essential to the work of the committee. The committee needs to be prepared to be a frank critic of the intelligence community when criticism is justified, but also-as was said earlier-its champion when external criticism and antagonism from those who know little of the agencies' work is unjustified.

The noble Marquess, Lord Lothian, made the point that, as the confidence of the intelligence community and the responsibility and discretion of successive members of the intelligence and security community have grown, the committee's work has extended well beyond the restrictions in the original legislation. This has benefits for Parliament and the intelligence community itself. The committee's surveillance is no longer restricted in practice to the administration, policy and expenditure of the Security Service, SIS and GCHQ, the terms in which the original legislation was expressed. It has extended more generally to the work of the intelligence community as a whole, including-retrospectively-specific operations. This has been of general benefit.

However, if the committee is to achieve its full value, it needs to command the confidence not only of the Government and the intelligence community but of Parliament and the public generally. What has happened de facto therefore now needs to be recognised in legislative changes while retaining the necessary safeguards. The committee should now become a parliamentary committee instead of a government-appointed committee of parliamentarians. The wider extent of its activities should be explicitly provided for. Picking up the point that the noble Lord, Lord Foulkes, made, this would increase the independence of the secretariat of the committee who would then become servants of Parliament and not simply members of the Executive. I agree that that would be valuable. The committee should be able to reassure the public that it can require information from the intelligence community and not just request it-require it subject to the veto of a Secretary of State, without being at the mercy of the agencies in respect of the information they can obtain. These are changes that the committee has proposed; in fact, successive committees have proposed them. It is very welcome that the Government have endorsed them in their Justice and Security Green Paper.

As the noble Marquess, Lord Lothian, said, the Government have so far reserved their position on the extent to which the committee should oversee the operational activity of the agencies. Like the noble Marquess, I urge the Government to have confidence about this. I make one point in particular. The committee has already shown itself to be competent in examining specific episodes, often at the Government's request. However, the public are much more naturally concerned with the operational activities of the agencies-such as their part in the treatment of terrorist suspects or the events leading up to 7/7-than in the agencies' financing and administration. If the committee is to command the public's confidence in holding the intelligence community to account, it must reassure

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them that the agencies are being properly supervised by Parliament. It is essential that the Intelligence and Security Committee be able to play a role in that, as indeed it already has done. It is not as though we want to look at such operations currently; we will always look at them retrospectively. Nor do we want to go as far as the US congressional committees, which are required by legislation to be informed of the agencies' current operations. Does the Lord Chairman think I am going on too long?

The Deputy Chairman of Committees (Lord Faulkner of Worcester): I was waiting to see if the noble Lord had finished because a Division has been called and we will have to adjourn the Committee. We will look forward to hearing the remainder of his speech when we reconvene at 7 pm.

Lord Butler of Brockwell: It will not take very long.

Committee adjourned at 6.49 pm for a Division in the House.

7 pm

Lord Butler of Brockwell: My Lords, I have only one other point to make, and it is the one that was covered by the noble Marquess, Lord Lothian. It is a very important part of the Government's Justice and Security Green Paper and of the ISC's annual report. It is the balance between the interests of justice and the protection of intelligence in court proceedings.

Civil litigation against the Government by those who claim to have been improperly treated at Guantanamo and elsewhere has introduced two new dimensions to this problem. One is the order of the judge in the Binyam Mohamed case referred to by the noble Marquess to disclose American-sourced material. As the noble Marquess said, it is difficult to overstress the effect that this has had on the attitude of the US authorities to sharing intelligence material with the UK. The other is the difficulty that the United Kingdom has had in defending actions against the Government when it can do so only by disclosing sensitive material. I fully understand the feelings of those who are reluctant to see the extension of closed material procedures or the greater use of special advocates. But I agree with the Government that the best interests of justice for all parties can be secured only by the extension of closed material procedures and the use of special advocates in those cases. But I also agree with the noble Marquess, Lord Lothian, that this needs to be buttressed by writing into the law a rebuttable presumption against the disclosure of sensitive material in such cases to provide guidance to judges about what is the will of Parliament. I agree with the noble Marquess about that as, indeed, I do on all the other points he made.

As has already been said, there are many other important matters covered by the ISC's report: the creation of a National Security Council and its implications for the Joint Intelligence Committee and the rest of the Government's central intelligence machinery; the security aspects of the Olympic Games and the challenges to the intelligence agencies in dealing with them at the same time as the other demands on

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their resources; the need to wake up government agencies and the private sector to the threat that cyber poses to them; and much else.

One of the great benefits of the ISC's annual report is that it is a comprehensive annual report on current issues affecting our intelligence community. What is more, having had no part in drafting it, I think I can say that it is a good read. I feel grateful and privileged to be able to contribute to it in at least a small way.

7.03 pm

Lord Hennessy of Nympsfield: My Lords, I add my thanks to the noble Marquess, Lord Lothian, for securing this debate. Sir Colin McColl, a former chief of the Secret Intelligence Service, was asked some years ago to encapsulate the purpose of British intelligence. He replied that its job is to provide,

for its customers. I regard the Intelligence and Security Committee in a similar light, for it provides Parliament and the public with an indispensable pair of cat's eyes into the necessarily dark world of our secret state. I therefore welcome the committee's new remit, reach and status as a committee of Parliament and support the words of the noble Marquess about the need for extra resourcing.

Last Thursday, I found myself on the 2.30 from Paddington-to give the occasion a Miss Marple-ish touch-with the noble Lord, Lord King of Bridgwater, the founding chairman of the ISC, who guided the committee through its first seven years of life after its creation by the Intelligence Services Act 1994, during which, as the noble Lord, Lord Butler, has already said, great strides were made. The noble Lord, Lord King, told me not only how much he regretted the short notice of our debate today and that he could not alter his travel arrangements and be here but also that he, to use his own words, "always thought that the ISC would be a Select Committee one day", and that this would be, "a natural progression".

In my judgment, the committee's work over the past 17 years represents a significant constitutional development alongside its regular functions of inquiry, scrutiny and report. We have come a very long way on the openness front. In 1982, when I was working for the Economist, the Falklands War erupted as if out of the blue. In the Economist the following week I produced a chart of what we called the "Falklands war machine". In it I put the Joint Intelligence Committee in the hierarchy of the Defence and Overseas Committee of the Cabinet, and so on, and what was going to be the War Cabinet, and mentioned the weekly production of the summary of intelligence, the Red Book. The reaction in Whitehall was astonishment; it was if I had held a crucifix to Dracula. We have, indeed, come a very long way, and quite rightly. The ending of the Cold War made it so much easier as well in terms of admitting to all of the agencies and the structure of Cabinet committees and assessment staff and so on beneath.

Perhaps I may concentrate today on the terrain covered by section 5 of the ISC's 2010-2011 report-the configuration and the working rhythms of the central intelligence machinery. Since the committee reported and the Government replied, we have had the report

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to the Prime Minister prepared by Paul Rimmer of the Cabinet Office's assessment staff, and Kieran Martin, then of its Security and Intelligence Secretariat, on the future workings of the Joint Intelligence Committee.

In essence, the Rimmer-Martin report recognises the new reality-that the JIC has become partially eclipsed by the work of Mr David Cameron's highly significant innovation on the first day of his premiership when he created the National Security Council. As the National Security Adviser, Sir Peter Ricketts, expressed it during an International Institute of Strategic Studies seminar on 30 November-at which the noble Lord, Lord Gilbert, was also present-the NSC has become,

which, he explained, has resulted in a,

The Rimmer-Martin report, which the Prime Minister has now signed off, declares that,

"The NSC's priorities should be the lead driver of the JIC agenda",

and that,

each Wednesday morning,

Rimmer-Martin continues,

As a result, from next month, January, JIC meetings are to divide into two: into a monthly gathering of principals at four-star level, including the heads of the agencies, as has been the norm, to take the more strategic and longer-term papers prepared by the assessments staff; and weekly meetings in the interim of sub-principals, "to agree papers in between".

I recognise that these arrangements reflect the new reality. Over the past few years, even before the creation of the National Security Council, it has sometimes been hard to entice busy grade 4s to JIC meetings. For a while they fell to fortnightly rather than weekly, which was a mistake. Indeed, I have heard the JIC described by an initiate as, "the most highly paid re-drafting committee in Whitehall". I am reassured by the fact that the assessments staff reports are very much a part of the NSC's meetings and that the assessments staff continue to produce each morning the daily highlights of intelligence summaries for the Prime Minister and those Ministers inside the inner intelligence loop. I note, too, that the JIC will continue to set the annual requirements and priorities for the intelligence and security agencies.

However, I am concerned that some key elements of the JIC tradition might fade under the new dispensation. The most crucial and lustrous elements of that tradition emerged from the experience of the JIC during the Second World War, after Winston Churchill brought the JIC fully into the Whitehall sun-and after a pretty feeble first four years of life following the committee's establishment in 1936. It was the working assumption that the painters of the intelligence picture would keep firmly separate from those who decide

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what to do on the basis of it, and that the intelligence providers and the JIC analysts do not fall into the trap either of advocacy or of telling their customers what they wish to hear, rather than speaking truth unto power. I have always believed truth unto power to be the gold standard of all Crown service, but especially those of the secret servants of the state. There have been lapses during the history of the JIC, but that tradition has always been restored and remains much admired by allied intelligence nations.

Early in the new year, a chairman of the JIC will be appointed to replace Alex Allan, for whom I have the highest regard. I hope that his successor, whoever he or she may be, will be steeped and marinated in that great tradition. I hope, too, that the Intelligence and Security Committee will keep a close watch on the new arrangements, to protect the JIC as best it can from further marginalisation and to report to Parliament next year how the NSC's pace-making and task-mastering has played out in real terms, both within the central intelligence machinery and in the work of the secret agencies. As ever, the ISC must be Parliament's cat's eyes in the dark.

7.11 pm

Viscount Slim: My Lords, I did not intend to intervene until I heard from both the noble Marquess, Lord Lothian, and the noble Lord, Lord Butler, of the slight rift-I put it at slight-with our American cousins. I was in Washington some three weeks ago. I must declare that I am an honorary chairman and director of the OSS-the only Englishman ever to be given such an honour. Of course, one mixes with the fraternity, as one might say. I also made a point of talking to a couple of senators and a number of congressmen, particularly those concerned with the Armed Forces committees and so on. My message throughout was, "You have problems; we have problems. It is absolutely vital-more than ever before-that our intelligence and security services, and the special forces of both our countries, work closer than they ever have", because, as we have heard today, other problems are going to hit us and they are coming on the horizon very quickly.

I merely tell your Lordships this because while it is up to the committee to handle it, not me, I got the most tremendous feedback and reception from our American friends of all the various agencies that I met. There was a gathering of 600 at which I spoke, and just about everybody was there. They came up to me afterwards and said, "This is vital. You have made a good point. We agree, and we must do something about it". While it is your Lordships' job on the committee and I support you greatly, I just felt that your Lordships should know about that tremendous feedback, and I was talking to the most senior people. We should not approach it too nervously. We should get stuck in and retain our great and close co-operation with the American fraternity.

7.15 pm

Lord Triesman: My Lords, I start by joining everyone else in thanking the noble Marquess, Lord Lothian, who not only introduced a very important report but

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did so in a way that I thought was very valuable in clarifying the critical issues in that report. Like him, I welcome the appointment of the noble Lord, Lord Butler, to whom I must apologise. I got locked in as the Vote was being declared in the Chamber and consequently missed what I hope was no more than a few seconds of his informative and important speech.

In thanking the noble Marquess, Lord Lothian, I want to say that I was strongly impressed by what he had to say about the reform of the committee and about the proposals that are likely to appear in the Green Paper-an issue to which my noble friend Lord Foulkes also referred. I am quite sure that my noble friend Lord Foulkes is right about political balance, but I accept the argument that the future disposition of the committee and the way in which it works is a matter that still falls to be discussed on another occasion.

I agree with the noble Marquess about the role of redactions-they are plainly necessary, so we might as well be candid in saying that-and I agree strongly that the character of the changing risks that we face may well suggest the need for the recreation of a single account in order to be able to act with the appropriate flexibility.

I agree strongly with the notion of oversight of operational matters and of material of public concern that is in the national interest, and I can completely see that that could be formalised on a statutory footing by the Government. On behalf of the Opposition, I indicate my strong support for those propositions.

The noble Marquess must be right in what he says about the committee's resources. The committee must have the capacity to generate information and to be able to analyse information on its own account.

Both the noble Marquess, Lord Lothian, and the noble Lord, Lord Butler, made the point that there is a strong case for the provision, under parliamentary rubric, of a presumption that foreign intelligence should remain closed in court procedures unless there is another reason. Unless we are going to abandon that whole approach, we must surely take that step, which is the only rational step that achieves that outcome.

My noble friend Lord Foulkes, in describing the importance of this overall area, said that he would welcome broader discussions on the Floor of the Chamber. There must be good sense in that.

The noble Lord, Lord Alderdice, drew attention to cyberattacks. I will come back to that more substantially in a moment because he made some very important points. However, I was intrigued by his argument, for which there may well be compelling evidence, that as changes take place in Europe more generally-and certainly within the EU-there will need to be careful consideration of whether new kinds of threats are emerging as a result. It will be interesting, to say the least, to see how fast these issues emerge on the agenda of the principal think-tanks over this next period.

The noble Lord, Lord Butler of Brockwell, made the point, which I think has just been echoed by the noble Viscount, Lord Slim, about the international character of the work of the intelligence agencies. I share that view completely. In the contemporary

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circumstances, it is almost impossible to imagine working other than with those who have shared interests. There is too big a hill to climb under any other circumstances.

Like the noble Lord, Lord Butler, and others, including the noble Lord, Lord Hennessy, we strongly support the creation of a parliamentary committee as the natural successor to the committee's work over a long period.

The noble Lord, Lord Hennessy, provided an exceptional forensic description of the new architecture, and I appreciated that a good deal. In the course of his speech, he made the point about the JIC potentially fading away. Perhaps I can address that point in a little more detail. First, Sir Malcolm Rifkind's committee has produced an illuminating report that is of great use to all of us. He does not specifically mention the work of the staff of the intelligence agencies, but when you look at the overall substance of the report, you can identify the value of that unsung part of our work permeating throughout it. I share that appreciation and want to record the fact.

The report is couched, like so many that we produce and see, in typically diplomatic language. None the less, it is very sharp on all the main issues. However, I fear that the Government's response is much less sharp, rather less focused and can be frustrating to read. I say this out of an interest and pride in, and a concern for, our national interest in this. There is no party politics in this point as far as I am concerned. I fear that it is of no use to deal simply with the main observations and proposals by thanking the committee for all its work and saying that you agree with all of it when the following text gives no detail of what that agreement might mean. I do not say this to be disobliging but the Government cannot argue that important parts of their response can be put in those terms without any apparent need to say what they intend to do about some of those key issues. I would have welcomed much more detail within the restrictions of dealing with secret intelligence.

May I just identify a few of the things that fall under that rubric and where I should like to see a more detailed, and perhaps more penetrating, response from the Government? The first is the issue that the noble Marquess, Lord Lothian, and the noble Lords, Lord Alderdice and Lord Butler, have all mentioned: the provision of a suitable cadre of internet specialists. The noble Marquess, Lord Lothian, rightly mentioned that 18 bodies seemed to be involved in this and that there is at least a risk of a lack of co-ordination among so many of them. I share the view of the noble Lord, Lord Alderdice, that the attributes of many of the specialists are curious in the general spectrum of government service. I well remember, on one occasion as a Minister, talking to a young guy who collided with me on his skateboard in the office. Neither of us was seriously injured; I am bringing no claims against anybody for injury at work. However, it was certainly unusual. I completely subscribe to the view of the noble Lord, Lord Butler, that many of these interesting and obsessive characters do it out of sheer love of diving into the nitty-gritty of all these processes.

The Government's view of the possible need for a suitable cadre of internet specialists appears in their response to proposal E. It is essentially that we will

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somehow find a significant number of people who will emerge and train those we need. I will be candid: I do not expect to see it and I do not believe it. Interestingly, in recommendation K, shortly after the Government have made the point that they will produce these people by exposing them to the available suitable trainers, they also say that they will improve value for money from their work. I am keen to know how we will do these things and how many people we think we can recruit to these roles. Will the departments compete, as the Government's response suggests, or, as under recommendation K, will they not compete because this is a time for non-competitive recruitment? Both proposals appear within two or three recommendations of each other. How on earth will we do these things? I do not ask this to be objectionable. If we all agree that it is that important, I am just eager to know how on earth we will do it. What do we think we need to do to reach any kind of milestone in that area?

I turn to recommendation F, about GCHQ's accommodation strategy, which is described in the report as having been "haphazard in the past" and inflexible for the future, with no long-term sensible strategy. The Government's response to that is that the haphazard character of the strategy will broadly be overcome. It is not clear how, because all the means of overcoming it seem to be dependent on others, including SIA. I am not sure that that is a strategy at all. How precisely will the Government overcome the criticism that the report levels and what is their plan for doing so?

I turn to the Government's response to recommendation I, on the need to respond effectively to increased threats in Northern Ireland-incidentally, I do not for a second think that the Government do not take these threats seriously; quite the contrary, I do not know of any Government who in recent times have not taken the issue completely seriously. The committee states that,

The Government agree, but how is that to be achieved? What consolidation of effort do the Government have in mind? Will there be additional resources or is it suggested that existing resources will be redirected? What, broadly-and without providing any sensitive information to those who would take unfair or wrong advantage-is the plan for doing that? What is even the shadow of the plan that we might have a look at?

I want to focus above all on the committee's concern, which the noble Lord, Lord Hennessy, has also dissected for us with great clarity, to avoid duplication, overlap and the consequent lack of focus, those matters which are covered broadly in section 5, but which come up time and again in the report as a whole. They are dealt with in recommendation N, on prioritisation and allocation of effort; in recommendation O, on the creation of the national security adviser post; in recommendation P, on overlaps in remit and duplication; in recommendation S, on the effective co-ordination of it all; and in recommendation T, on the strategic tasking directive not being satisfactory.

The noble Lords, Lord Foulkes and Lord Hennessy, have both discussed that this evening. The noble Lord, Lord Hennessy, said that we need to address a new

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reality, which I am sure is quite right. However, the Government's response is essentially an assertion that there will be prioritisation, that the roles will not overlap, that the national security adviser post will co-ordinate the work of the JIC, and that the requirements and priorities in process and the strategic direction of the National Security Council will all somehow be addressed without confusion in the midst of this quite complicated architecture. All those things are at least implied by the Government's response to recommendation O.

In response to recommendation P, there is a list of the primary responsibilities of the Office for Security and Counter-Terrorism. It is said that they are not the responsibilities of the National Security Secretariat, in respect of which no equivalent list is produced by the Government. I think that a number of people, including those on the committee, have described the listings as being details at a high level. It is because they are at a high level that I cannot tell whether the overlaps have been overcome. I simply cannot follow it; I have tried really hard. I hope that noble Lords will forgive me if I have somehow missed it, but I think that those questions about duplication, overlap and the lack of focus that might result have simply not been dealt with intelligibly in the Government's response, and they are vital concerns for our national security. I am therefore inclined to the belief, expressed by the committee, that there is more to be done. Can the Minister perhaps list for us today the specific responsibilities of the secretariat so that I can see how they differ from those of other bodies? That would allow us to judge a little more about the overlap question.

My final observation, very briefly if I may, is on the question of the limitation of vital resources to undertake the work successfully. I think that the noble Lord, Lord Alderdice, also raised this question. In recommendation V, the point is made that cuts to the ISC and the BBC Monitoring service are regarded as dangerous to defence intelligence capability. Defence intelligence relies heavily on these sources to support operations-these are the points that the committee makes. They serve the intelligence community as a whole, in addition, and without good information it is obviously hard to work on the basis that you genuinely have sound enough intelligence to do the job effectively.

The Government's response is not to give a clear undertaking or commitment about those resources-one might perhaps expect that response to what might be a problem for the safety of the people of the United Kingdom-but to say that they will work with the BBC to examine requirements. I want to know how and when that assessment is to take place. Will the levels of investment be sustained in the interim, while everybody is working out what might be the future dispositions? What leads the Government to believe that the defence intelligence and wider intelligence communities have not made a proper assessment so far of what they need, in order to work effectively at present? There may be an adequate response, but what I worry about is that in some areas-for example, on page 13 of the Government's response-it appears that those decisions have already been made in a negative sense. The future cuts will be, it says,

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while the task remaining is to,

Whatever happens, it looks as though those cuts have been embedded.

It may be that the answer to a number of these questions will be that there is an operational risk in answering them. If that is said today, I shall accept it because I know from first-hand ministerial experience that I have no desire to see anything said that would be of any use to an enemy of the United Kingdom. However, the background detail in Sir Malcolm's committee's excellent report suggests that those questions could be answered. That is the reason I urge the Government to do so. I look forward to the Minister's answers. I feel that he will surely do better than the Government's response to the report and that that would be of huge benefit in making sure that the value of Sir Malcolm Rifkind's work, and the work of his committee, is realised to its fullest extent.

Lord Gilbert: My Lords, may I enter a rather eccentric note of dissent? I was listening with great care to my noble friend's speech. I thought it extremely well informed, and I was not surprised at that. My point of dissent is that I do not approve of this committee being translated into a parliamentary committee. I see great virtue in it being the only committee of parliamentarians that reports directly to the Prime Minister. In my experience, when I was on the committee and Sir John Major was the Prime Minister we used to have meetings with him at No. 10 to discuss our reports in detail. I know of no other committee that has that sort of access and I think that the Prime Minister and the committee benefited from it. The other benefit which you have from it being a non-parliamentary committee but a committee of parliamentarians is that you hugely diminish the role of the Whips in who goes on that committee. Both those things are matters of supreme advantage, which we would sacrifice by transforming this into a parliamentary Select Committee-a development which I personally deplore.

Lord Triesman: My Lords, that intervention invites a very brief response. I have no aversion whatever to the committee being available to and able to speak to the Prime Minister. Broadly speaking, I believe that Select Committees in Parliament have had that capability for a long time. In my view, the biggest advantage is that these areas which have been regarded as incredibly obscure and difficult, and usually as a means of veiling from the public and parliamentarians some things which are in their vital interests, and in the vital interests of the country, will at least be dealt with on the same basis that much other sensitive material is.

The Marquess of Lothian: As a matter of information, what we are looking to become is not a parliamentary committee, a Select Committee, but a committee of Parliament-there is an important distinction. Because of the work we do, being a parliamentary committee, a Select Committee, would put at risk some of the committee's ability to look at certain information that it can look at at the moment. We are looking to become something in-between. For exactly what that will be, I think we have to wait to see the outcome of the Green Paper, when the White Paper is produced.

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7.36 pm

The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): My Lords, this has been an extremely well informed debate, as one would expect. I am sorry if the noble Lord, Lord Triesman, found the Government's response-

7.37 pm

Sitting suspended for a Division in the House.

7.45 pm

Lord Howell of Guildford: My Lords, as I was saying, this has been a highly informed and expert debate conducted by many expert people. I was regretting that the noble Lord, Lord Triesman, found the Government's response a little lacking in sharpness and focus or perhaps lacking flavour; I shall use my best endeavours to add a bit of pepper and salt to the meal and perhaps make it a little more tasty.

Before turning to address a range of detailed points, which I intend to do, first let me thank the noble Marquess, Lord Lothian, for opening this debate and the two Members of our House, the noble Marquess and the noble Lord, Lord Butler, who are the representatives of the House of Lords on the Intelligence and Security Committee. The words before me are to thank in a rather formal way all the other members of the Committee, but I would like to go a bit further than that. First, I would like to thank the staff as well as the committee members, and secondly, I would like to say frankly that I am awed by the amount of expertise and the work and dedication that are put into the committee's work. In a sordid world of gain and loss, this committee has no obvious reward and there is no dose of the elixir of publicity that politicians like-it is toiling in solitude, and it is magnificent work. One sometimes half-wishes that the media would pick up on the fact that all this work is done, because they are oblivious of the amount of effort involved. They may comment on the results and the things that titivate the public, the media and so on, but they are rather oblivious of the amount of work that it is put in by people such as the noble Marquess, the noble Lord and the committee. I can see that too much publicity is not desirable, but a little greater recognition in the media of what is being done in the national interest would sometimes be appreciated.

It is vital that we have a strong framework for overseeing the work of the security and intelligence agencies. The ISC's annual report is of the highest quality and underlines the unique and valuable role in this framework that the committee plays; I do not think there is any question about that. We should also think about the subject matter: the agencies. We should be proud of them. Their staff work day in, day out, often at very great personal risk to themselves, to keep the nation and its people safe. We owe them an enormous debt of gratitude and, as the committee notes, those working in this field continue to excel at a very challenging task. Again, those words are inadequate for the sheer danger often involved in the task. I remind noble Lords of the very striking speech made by my right honourable friend the Foreign Secretary on 16 November

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about the work of the intelligence services, in which he highlighted the extreme, often fatal, danger faced by those working in those agencies. I am sure that noble Lords will join with me in sending them our thanks and our praise for the work they do for our nation.

As my right honourable friend said in that speech, these agencies not only defend us from threats to our national security and to the lives of British citizens but they also provide vital support to British military operations and diplomatic intelligence which gives us a key national advantage in foreign and security policy. It is precisely because of the vital importance of the agencies' role-and much of it must inevitably be kept away from the public gaze-that their work should be, and is, properly scrutinised.

Now let me turn to the detailed issues raised, after which I will turn to the detailed points made by individual Members in this debate. First, the Government's Justice and Security Green Paper-it is white, but never mind-has generally been recognised as a very striking and strong contribution to the evolution of thinking in this area. The Government's aims were set out in the Green Paper. These are: to better equip our courts to pass judgment in cases involving sensitive information; to protect UK national security by preventing damaging disclosure of genuinely national security-sensitive material-I will come in a moment to how that balance is to be struck; and to modernise judicial, independent and parliamentary scrutiny of the security and intelligence agencies to improve public confidence that executive power is held fully to account.

The Green Paper is one part of a package of measures announced by the Prime Minister in July 2010 aimed at restoring confidence in our security and intelligence services and allowing them to get on with the crucial job of keeping us safe. The Prime Minister also announced the establishment of the Detainee, or Gibson, inquiry. He published the consolidated guidance issued to intelligence officers and service personnel on engaging with detainees held overseas by third parties. He also announced the intention to reach a mediated settlement of the civil claims brought by former detainees of Guantanamo Bay because those claims could not be properly tried. This was achieved in November 2010 and was touched on by the noble Lord, Lord Butler, in his very sagacious intervention.

Combined with the proposals in the Green Paper aimed at improving the courts' ability to handle intelligence and other sensitive material, this represents a comprehensive package to address these difficult issues and to enable our security and intelligence agencies to get on with the vital task of keeping the nation safe. The Green Paper consultation process is under way and closes on 6 January. In answer to the query raised by the noble Lord, Lord Foulkes, the aim is to go for legislation as soon as practicable, or thereafter. The comments in this debate will also receive full attention as part of that process, along with the range of responses from the public, which have been fairly extensive and substantial.

There are two distinct parts to the Green Paper proposals: reform of judicial scrutiny of intelligence and other government-held sensitive material, and

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reform of the non-judicial scrutiny of the intelligence community by independent and parliamentary bodies. I am going to deal with both of these. Reform in each area in its own right is required and necessary.

On judicial reform, the Government favour legislation to make closed material procedures available in civil legal proceedings where they are not currently available and in the rare instances in which sensitive information is centrally relevant to the case. The role of special advocates to represent the interests of the excluded individual is central to ensuring a sufficient degree of procedural fairness in closed hearings. The Government will ensure that this, and all other legislative proposals in the Green Paper, are consistent with our domestic and international legal obligations. The two drivers in this whole process are to increase fairness to all parties in civil proceedings, and to ensure that sensitive material is adequately safeguarded from public disclosure. That is the balance that has to be struck. This last point is critical, especially the importance of keeping safe information passed to us by other Governments, which several noble Lords, including the noble Marquess, Lord Lothian, referred to. We expect other Governments to keep our material safe when we pass it to them, and of course they expect the same of us. This goes to the heart of the control principle. Where it has in the past been offended-one instance was quoted-the repercussions were serious, sensitive and difficult to handle.

On non-judicial reform, the Intelligence and Security Committee has put forward in its excellent report, and indeed in the debates that took place in another place, reform proposals that the Green Paper largely supports. We have here a concurrence of support. The Green Paper proposes: changing the ISC's status to a statutory committee of Parliament, answerable to Parliament as well as to the Prime Minister-a point that almost all noble Lords have raised; formalising the ISC's role in overseeing the work of the wider intelligence community-that is, defence intelligence and the OSCT central intelligence machinery in the Cabinet Office; reforming the ISC appointments process to give Parliament a more substantial role; reviewing the ISC's resourcing and accommodating the ISC on the Parliamentary Estate-a matter raised by my noble friend Lord Lothian-and the Government are reviewing the central question of resources for the ISC as distinct from resources for intelligence operations generally; and the question of the ISC having the power to require information from the agencies, subject only to a veto exercisable by the relevant Secretary of State. That is our positive and detailed response to the Green Paper, which coincides with what noble Lords have been saying.

On a more sensitive and difficult area, the Government are giving careful consideration to the ISC's proposal, reinforced by the noble Lord, Lord Butler, and I think by my noble friend Lord Lothian, to extend its remit to include operational aspects of the work of the agency. At the risk of too much repetition, I can only repeat the words of the Green Paper about how far one can go on this front. The consequences of creating a general power are significant and need careful thought to ensure that the implications have been understood. The principles that the Government believe are important

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in considering this issue include safeguarding the integrity of ministerial responsibilities, avoiding overlap with the roles of other independent oversight bodies and ensuring that there is no lessening in the effectiveness of the work of the agencies or undue resource burdens placed on them. In addition, any such oversight of operational work would need to be clearly retrospective and, in the Government's view, would need to be focused on matters of significant national interest. The point was rightly made, I think by the noble Lord, Lord Butler, that we do not want to go down the path of our American allies or the Washington procedures, which go into areas where we would not want necessarily to follow. Any change of the kind that we suggest or has been suggested would therefore need to be based on a clear understanding between the Government and the committee on how this should work in practice, articulated either in legislation or possibly in a supporting document such as a memorandum of understanding.

Before I come to the detailed points that have been made, let me refer to cybersecurity, an issue raised by the noble Lord, Lord Alderdice, and several others. Of course there are concerns and of course the Government share them. The Government have recognised the real and increasing risk to the UK's national security from cyberattack. The National Security Council has assessed cyberattack as a tier 1 threat in the national security strategy and has allocated additional funding of £650 million over four years to respond effectively to threats from cyberspace through a transformative national cybersecurity programme.

In fact, my right honourable friend William Hague, the Foreign Secretary, hosted a conference on cyberspace at the beginning of last month, which looked at how Governments, businesses, individuals and non-governmental organisations can maintain the economic and social benefits of the internet and guard against criminal and security threats posed in cyberspace. All delegates agreed that immediate steps must be taken to develop practical measures and shared understanding, and to agree common approaches and confidence building through the UN group of government experts and through the Organisation for Security and Co-operation in Europe and other regional organisations. The UK is taking a leading role in initiating these important international discussions and we are pleased that the London agenda will be carried forward at a further session, which will be held in Hungary, and after that in South Korea. So we will continue to be very vigilant on that front in both overseas fora and at home.

I was going to add something on the Olympics, which did not come up in this debate but was certainly a matter aired in the debate in the other place. Therefore, for reassurance and for the record, I say that the Government are committed to a safe and secure Olympic and Paralympic Games. With less than eight months to go, safety and security activity is on track and well advanced, including within the intelligence community. Funding for Games security has been protected. The Government remain confident that the core safety and security programme can be delivered within the £475 million announced in the spending review of last December. The venue security budget is separate from the budget for policing the Games. We are confident

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that the 2012 Games will be delivered within the £9.3 billion public sector funding package. These costs are an appropriate investment in the safety and security of the public and our international visitors.

I have covered some of the points raised but let me turn in more detail to the excellent and informed comments of various Members during this debate. I repeat: the ISC report is excellent. My noble friend Lord Lothian made a number of central points about status and so on. I have already mentioned that. He asked about funding changes if the nature of the threat changes. This is something that can and does happen. The nature of the threat changes and there needs to be flexibility. Where unforeseen emerging threats place new demands on the SIA, the first response has been and will be to reprioritise within existing work. Agility and flexibility to redirect effort towards emerging threats and away from receding ones are core established strengths of the British intelligence community. That is splendid language for saying, "Don't go on spending on things that have been solved and have passed. Focus on the new challenges and switch your resources to them". There are mechanisms in place for doing that. The Government's top requirements are given the priority and resources that they need. The point that there is a need for flexibility and that things can change rapidly is well taken, and the operational systems are in place to meet it.

My noble friend also mentioned the overseeing of operations by the ISC and closed material procedures, which I have already covered. He also mentioned a rebuttable statutory presumption. With a statutory presumption against disclosure, it must be possible for the courts to rebut the presumption if necessary. The Government's analysis is that such a rebuttable presumption, while carrying the weight of Parliament's opinion, would not alter the decision-making process of the court, which is anyway already deferential to the Executive on national security-related decisions. That is the Government's comment on that point, which my noble friend Lord Lothian raised.

The noble Lord, Lord Foulkes, spoke about a number of relevant issues. He talked about the composition of the committee. The obvious answer is that party politics and the balance between parties are not relevant to the nomination of individuals to the committee. It is not seen as a political matter at all. It is a matter of gaining people with first-class experience. It might well be that in one Parliament or one set of membership there would be two or three members of the Opposition and one or two on the Government's side. The people who serve on the committee are not connected to the balance between the parties. I have to say that to the noble Lord. He may say that he wishes it was but that is just not the way it is.

Should it be a committee of Parliament? The answer is yes. That is what the Green Paper proposes and that is what we are moving towards. We will work out how to do that. I have answered the noble Lord's question about the timing of legislation.

The noble Lord turned to the national security adviser, and I do not think I am going to make any personal comments here, except to agree with him that of course all departments put up their defences-he

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used the word "blinkers". All institutions put up their defences and fight their corners, and they are right to do so, just as Ministers are right to try to remove the blinkers. They do not always do so to roars of applause, but these things have to go on, and if Ministers do not do that, they are not doing their job. That is the remedy for his concerns.

As for co-ordination and who co-ordinates what, the whole point is that the National Security Council, which, as the noble Lord, Lord Hennessy, said, is an amazingly important innovation, co-ordinates. It is under the chairmanship of the Prime Minister, and it is the co-ordinating body. That is the way the new system works and is the whole point of the National Security Council in its developed role under this Government. It is a very significant change. There is co-ordination right under the Prime Minister. He has advisers and that committee, and there is a relationship with the JIC as well, which is charged with looking at, responding to or putting into effect the kind of agenda that the NSC establishes and lays down.

The noble Lord, Lord Foulkes, also asked about Scotland and the security implications of Scottish independence. I am not sure I am in a position to give an answer to that, or even want to, but one can safely assume that the relevant departments are assessing it, and if such a thing were to occur, the machinery would go forward to examine all the implications for all aspects of UK policy of Scottish independence. I do not think I can say more than that. The noble Lord very generously reminded us again to thank the intelligence services for their skill, professionalism, integrity and, I would add, sheer courage as well.

The noble Lord, Lord Alderdice, said that he had been a customer of the services. So was I for a time in the past, and I suppose we were good customers because we are here to tell the tale. He mentioned BBC Monitoring, which is important, and I have a note on it that I would like to share with him about the real cuts that had to be applied when the new Government came in. We did not have any choice. The cuts were discussed with BBC Monitoring in principle before the start of the financial year, and we have worked closely with BBC Monitoring, and continue to do so, on the best ways of minimising the impact of reduced funding. I am advised that the Cabinet Office is currently working with stakeholders and BBC Monitoring to agree the form and structure of BBC Monitoring during the transition period and after it has joined the BBC, which will be in April 2013. That is what is going on there. That is what I wanted to tell the noble Lord about that.

The recruitment of people who are not conventional civil servants, in the phrase used by the noble Lord, Lord Butler, brought back memories-and I suspect it does to a number of noble Lords-about life in university days when people appeared from unmarked offices in London and wanted to have tea to look you up and down to see whether you were suitable material for their purposes. A number of my friends went off for long strolls with those gentlemen and may even have received invitations afterwards. I waited eagerly to be asked to go on a long stroll or to have tea, but an invitation never came my way, so I was obviously

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considered unsuitable material, much too conventional or wrong in some sense, right from the start. The eye was clearly out, and is always out, for the original person, the non-conforming, challenging, questioning person, man or woman, and they are the people with the flair and the ability for quick lateral thinking that the intelligence services clearly need.

From my experience in and out of ministries over almost half a century, the old phrase "the conventional civil servant" is vanishing. The officials that I encounter are anything but conventional. They are a lively, original and disparate group of people who are bringing to bear ingenious minds on the increasingly complex world of government-which, of course, it is. The internet now empowers the individual and challenges the data monopoly of government, and the whole business of government is infinitely more difficult than it was 20, 30 or 40 years ago.

I would like to say a number of things on training, which is a very important aspect that was raised by the noble Lord, Lord Triesman, the noble Lord, Lord Alderdice, and others. Policies for the recruitment and retention of specialist staff are the responsibility of individual departments-that is rather obvious-but under the national cybersecurity programme the Government are supporting individual departments and agencies in developing cybersecurity training and skills capabilities for their staff. In addition, the Cabinet Office and GCHQ are both supporters of initiatives such as the cybersecurity challenge, which promotes careers in cybersecurity by annual competitions and events while providing advice and opportunities to individuals who wish to learn how to start a career in the information security field. This is a busy area and we recognise that technologists specialising in internet security, especially with experience at GCHQ, are very highly prized within a competitive external industry. GCHQ, therefore, has a retention payments system to retain its competitiveness with industry where it can. This is reviewed from time to time to ensure it remains competitive and these bonuses-because that is what they are-and the appeal of GCHQ's mission help to keep leaver rates low compared with industry peers. That is the position; that is what we are doing. Obviously, not everything works, but the main thrust is there and will continue to deliver requirements.

On psychological training-even if I knew a great deal about it, I would not be sure whether it was right to reveal it-it would pass belief if there was not a very heavy emphasis on psychological training inside the intelligence services. One is dealing with psychological situations, so training of that kind is necessary. I would take a bet-it should perhaps be an assurance-that such training is in place.

The noble Lord, Lord Alderdice, asked about research sources. Yes, a great deal of research is carried out internally, but we also turn to independent external research support to an extensive degree. That will certainly continue.

The noble Lord, Lord Alderdice, shared with us a fascinating thought about anti-government street protests, political instability and so on arising in Europe: are we informed about where the next so-called Arab spring phenomenon is going to occur? It might occur anywhere.

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The intelligence services tend to keep as much of an eye on this as well-informed politicians and journalists. It does not necessarily need an exclusive monopoly of experts in secrecy to assess when the next riot in the next capital, the next burning of flags, the next raiding of buildings, or anything else, is going to be.

The noble Lord, Lord Butler, touched on the fundamental issues, as one would expect, and said that the combination had to be between accountability on the one hand and the proper requirements of secrecy on the other-that is the challenge. He referred to new spying technologies, and there are plenty of those. One tends to learn about them mostly in racy novels and then, a few years later, you discover that the intelligence services have either caught up or have been practising these things all the time. I commend particularly to your Lordships the Swedish novels by a gentleman whose name I have forgotten at the moment, but they are very popular and have been made into films. They contain hair-raising matters, broadly to the effect that nothing, but nothing, that we put onto our mobile telephones or computers is private or inaccessible to the right kind of technologies. He reinforced that we must move from a committee of parliamentarians to a Committee of Parliament, and he discussed the operational role issue which I have already commented on in considerable detail to your Lordships.

The question of the interaction between judges and courts and the need to guard sensitive material is very difficult. The noble Lord outlined the difficulty. Whether it can be met in general or whether there will be recurring individual instances where we are in difficulties, I do not know, but it is a matter that must be examined and watched acutely and very carefully. It is partly covered by what I said earlier about the control principle, access to courts for more sensitive material and closed material procedures.

The noble Viscount, Lord Slim, mentioned the American links, which are very important. No-one questions the importance of all our international links, and it may be that we need to develop-this is not a report of what is happening but an opinion by a Minister-links with intelligence in unconventional areas. The truth is that the world's power, wealth and technological and security capabilities are moving, like everything else, to Asia, to rising Africa and to Latin America. These are the places where we will need to seek services and information. It is not merely a question of us providing them. We will also need to seek an input of new technologies, methods and information from those countries as well. This is an international scene, as the noble Lord, Lord Butler, emphasised.

The noble Lord, Lord Triesman, mentioned the response of the Government, and I have done my best to add to it. He returned to the central issue of training up a suitable cadre of people, and I have described what the Government are doing. He asked about resources and the National Security Secretariat and asked for a list of things that it does. I will give him the following list that may help. It provides support to the national security adviser by co-ordinating the development and implementation of policy for decision-making at the National Security Council; it is responsible

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for providing policy advice on national security and foreign policy matters to the Prime Minister, the Deputy Prime Minister and Cabinet Office Ministers; and it has a wide range of other functions including the co-ordination of the Government's response during civil emergencies and international crises, overseeing the delivery of the Government's cybersecurity programme and its overseas single intelligence account, that we have discussed. The secretariat has also delivered a number of cross-departmental projects, including the national security strategy and strategic defence and security review. If I may add my opinion as an old hand, I think that that is a pretty good, detailed answer to the question that the noble Lord asked. I hope he feels that it meets his needs.

We have had a very important and wide-ranging debate this evening which illustrates that it is very important that the public have confidence that the Government's national security work is being robustly scrutinised. The first duty and the overriding priority of any Government is the protection of the British public. Great progress has been made in counterterrorism and in other areas in recent years, but serious threats to our national security remain on all sides and there are always the new surprises, the unpredictability and the variation of threats which noble Lords have referred to, which we have to be ready to meet. That is why it is vital that we have security and intelligence agencies that can continue to reduce those threats and help to keep us all safe. Their work is among the most important carried out by anyone, so it is right that they should have robust oversight. That is why we are modernising and strengthening the oversight arrangements in the way that the counsel of the debate this evening, the debate in the other place, the ISC report and the Green Paper from the Government have all emphasised. I warmly welcome the latest annual report which we have debated tonight. Its recommendations are informing change as we speak. I look forward to future annual reports being even more useful in helping our world-class intelligence and security agencies to get even better.

I end with one small anecdote. About 47 years ago-no, let me be more accurate; it was 41 years ago-when I first entered the Government as a junior Minister, a Permanent Under-Secretary of great eminence who I will not name slipped into my room one day. I eagerly expounded on the virtues of a freedom of information Act-transparency, better scrutiny, accountability and all the things that young Ministers are keen on, to which he replied, "Very interesting, but just remember, Minister, too bright a light often deepens the surrounding darkness". That left me thinking, and I am still thinking about that statement now.

8.20 pm

The Marquess of Lothian: My Lords, I thank my noble friend the Minister for a very comprehensive reply-one which, indeed, saved me having to say very much. I will try to be as brief as I possibly can. I also thank my colleague the noble Lord, Lord Butler, who also dealt in his speech with a number of the subjects that I thought I might have to deal with in finishing up. Perhaps I may say to my noble friend the Minister that I was disappointed in his response to the rebuttable

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presumption, as that has been put forward by a number of very senior people. I know that I am a mere Scottish lawyer, as indeed is Sir Malcolm Rifkind, but many lawyers feel that the rebuttable presumption gives some strength and weight to the principle of control and would be helpful to the judges in the long run. I hope that before the consultation is finished, my noble friend will look at that again but I was reassured by many of the other responses that he gave us tonight.

I have two or three very brief items. The noble Lord, Lord Foulkes, talked about having public evidence sessions in future, something which we are looking at very actively in terms of the reformed committee. It is not easy to do if they are to be genuine because of the nature of the information that we are dealing with but we think-as do the agencies-that there may be areas where we can have very genuine public evidence sessions. As the reforms go forward, we hope to be able to get somewhere towards that.

Secondly, in answer to the noble Lords, Lord Hennessy and Lord Triesman, the committee takes very seriously the question of the intelligence machinery and we will continue to do so. We will be looking in our evidence this year to pursue some of the points that have been made in this debate, and when we come to our report next year we will be reporting on whether we think that the new machinery is working. I assure your Lordships that the committee will take that very seriously.

Finally, there is something which is a slight bee in my bonnet. We were talking earlier about staff retention. I am particularly concerned about GCHQ, which

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really is a world leader in what it does. Rather than listen to me, perhaps I may briefly quote a little of what the director of GCHQ said, and which we published in our report:

"I need some real internet whizzes"-

he calls them whizzes-

That is not really a problem of government or administration but a real, practical problem if we are to retain the valuable work that is done at GCHQ. We all need, together, to try and find a way of addressing that.

Very finally, and I have left this deliberately to the end, can I say thanks to the staff of the Intelligence and Security Committee? After six years, I can say that I have never come across staff who are so hard-working-in fact, they are overworked, as I think the noble Lord, Lord Foulkes, would recognise-and who constantly produce work of the highest quality and standard, without which we would not be able to operate. I also give my thanks to them.

Motion agreed.

Committee adjourned at 8.23 pm.

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